Unpaid IRS Taxes: Frequently Asked Questions (FAQs)

Why do I owe money on my tax return?

Taxpayers end up owing money on their tax returns if they do not pay enough tax during the year. If you have an employer, they will withhold taxes for you. Similarly, if you receive a pension, the payer will also withhold tax from your checks. If you're self-employed, you will pay your own estimated taxes throughout the year. If the payments aren't enough to cover the tax liability, your tax return will show tax due. You can also end up owing tax if you receive other payments where tax isn't withheld or if your tax situation changed during the year - for instance, you got a divorce or your child got too old to qualify for the child tax credits. 

If I can’t pay my income tax, should I still file my return?

Yes!! The penalty for an unfiled return is much worse than the penalty for not paying. If you don’t file, the IRS charges 5% of your balance every month as a penalty. That starts the day after your tax return is due. If you don’t pay, the IRS charges you a half a percent (.5%) per month on the unpaid balance.

What if I can’t pay my taxes in full when they are due?

Not paying in full is not a major issue as long as you are willing to set up an agreement of some sort with the IRS. The IRS has many payment plans and resolution options available when you can't pay your taxes in full. You may be able to set up an installment agreement or settle for less than you owe with an offer in compromise. If you truly have no money, the IRS may declare your account as “uncollectible” until your situation improves.

What are delinquent taxes?

By definition, delinquent taxes refer to taxes that are due but not yet paid. Taxes can be delinquent even if taxes have not yet been filed. Delinquent means arrears or late.

What are the penalties for unpaid taxes?

Penalties for unpaid taxes are typically 0.5% of the tax you owe. The penalty increases to 1% if the tax remains unpaid 10 days after the IRS issues an intent to levy notice. The penalty decreases to 0.25% if you are in an installment agreement. The IRS assesses these penalties every month, and the total penalty can be up to 25% of your taxes owed. Moreover, interest does accrue as well.

Is there Interest on unpaid or underpaid taxes?

Interest on unpaid taxes is the federal short-term interest rate plus 3%. This interest rate changes every three months. Interest accrues until the tax owed is paid in full, and there is no maximum amount that can be charged in interest. You can see the current rates here for underpayments.

Will the IRS levy my assets for unpaid taxes?

The IRS can levy your assets for unpaid taxes. The IRS sends several notices before this happens. The last notice is usually the “Final Notice of Intent to Levy.” After you receive this notice, you have 30 days to respond. If you don’t appeal or make payment arrangements, the IRS can start to levy your assets at the end of that time period.

How can I remove a tax lien for unpaid taxes?

If you have a tax lien due to unpaid taxes, this can make it hard to sell or refinance your home. There are several options to remove the tax lien. You can consider paying off the taxes in full, applying for a discharge or withdrawal of the lien, or some other less conventional options. One option is to set up a direct debit installment agreement, which may allow for the lien to be withdrawn under certain circumstances. 

Can I settle my unpaid taxes for less than I owe?

Yes, you can sometimes settle unpaid taxes for less than you owe. The two most common options are an offer in compromise or a partial payment installment agreement (PPIA). There are strict requirements for both programs, and you have to give the IRS detailed financial information to prove you meet the criteria.

How can I find the best professional to help with my unpaid taxes?

TaxCure was created to help with this exact situation. Every person has a unique situation and varying consequences that arise from unpaid taxes. People owe the IRS and a variety of other tax agencies and there isn't once company that can claim to be the solution to everyone's unpaid tax problems. TaxCure is made up of a network of tax professionals around the country that all specialize in certain tax problems, solutions, and agencies. You can find the best tax professional for your needs by starting your search below and applying the specific filters that meet your unique situation.

How do I find out how much I owe the IRS?

There are 3 ways to find out. You can use the IRS’s online tool, call the IRS, request transcripts via mail, or look at the last notice sent to you from the IRS. Mailed notices do not have up-to-date information on interest and penalties, so it’s best to check online or over the phone. You can also contact a tax firm that specializes in tax relief. With software, and a dedicated IRS tax practitioner phone line, a tax firm can usually obtain transcripts and tax balances quickly.

What if My Spouse Owes Back Taxes?

If your spouse owes back taxes, it is important to understand your legal liability for these tax liabilities. Depending on the exact circumstances, you may or may not be liable for past due taxes that are owed by your spouse. In most cases, married couples will be considered jointly-filed and therefore liable for any back taxes that are owed. However, if you filed your tax return separately from your spouse either because you were legally separated or simply chose to do so, then you will generally not be held liable for any unpaid amounts. If you have questions about whether or not you are financially responsible for any outstanding taxes owed that your spouse may have incurred, it is best to consult a qualified professional who can help guide you through the process.

Do unpaid taxes show up on a credit report?

When taxes go unpaid, the IRS general files a tax lien. Tax liens use to be shown on credit reports, but this changed in 2017, and tax liens are no longer reported to the credit bureaus. Unpaid taxes can still impact your ability to obtain credit since creditors have other methods of obtaining information on tax liens filed. 

Does the IRS have forgiveness programs for taxes owed?

The IRS doesn't have a program that it advertises as a forgiveness program. However, they do have various programs that are tailored to the taxpayer's financial and tax situation. The most common method is an installment agreement. The IRS offers various forms of installment agreements that generally require different types of filings depending on how much you owe, the amount you can pay each month, and the required time to pay off the balance. For those individuals who cannot pay the required amount on payment plans, other options are an offer in compromise, partial payment installment agreement, or currently not collectible. 

What happens if you don’t pay IRS taxes for 10 years?

If you don’t pay your taxes for 10 years, the IRS usually will charge you interest and penalties for unpaid taxes. Assuming you filed your tax returns, you avoid the failure to file penalty. However,  you will still accrue the failure to pay penalty along with interest. If you don’t file your taxes, the IRS eventually files for you (normally after 3 years), which is called a Substitute for Return. You can read more about the consequences here.