Summary: A review of what happens if you can't pay a big tax bill to the IRS (current or several years old) and how to escape it.
If you’re facing a larger than expected tax bill, you’re probably wondering, “What happens if I can’t pay the IRS?” and, "Is there a way to escape it?"
First, take a minute to breathe.
Owing money to the IRS is pretty serious business.
And there’s one thing you’ve got to keep in mind:
Having a big tax bill isn’t something you can ignore and hope it goes away.
That’s a recipe for disaster.
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Since you can’t make cash appear out of thin air, what happens if you don’t have the money to pay?
No two situations are exactly the same, and your experience could be different. Generally, here’s what you can expect if you can’t pay the IRS.
The Amount You Owe Will Keep Growing
The IRS runs a pretty tight ship. You can bet they tack on penalties and interest fees when you don’t pay what you owe.
There’s one thing that can help.
File your taxes on time.
You’ll cut down on some of the fees if you file your return on time (even if you can’t pay).
Do you know why?
Because the penalty for not filing your taxes is pretty steep. You see, the IRS can tack on penalties and interest when you don’t file or pay what you owe. The penalty and interest fees can take your semi-reasonable tax bill and turn it into a debt monster.
Give yourself a break. 8% of all U.S. taxpayers are delinquent. You are not alone!
How bad are the fees?
I’m glad you asked.
But wait… there’s more.
You’ll also be charged a failure-to-pay penalty.At first, the penalty doesn’t seem so bad. It’s just 0.50% of your balance. But the IRS charges 0.50% every month. Your penalty rate drops to 0.25% if you set up an installment agreement.
Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later. We recommend you speak to an expert to see if you qualify for tax relief first.
As if that’s not enough…
Interest also accrues on your unpaid balance. The IRS calculates interest by adding 3% to the federal short-term rate. And the interest compounds daily, which makes your balance grow that much faster.
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Your Credit Score Can Suffer
Credit scores can affect everything in your life from buying a house and getting a lower rate on car insurance to whether or not you land your dream job.
You don’t want to take a chance on anything that can drop your score.
But you could put your credit score at risk if you don’t pay your taxes.
Hang on… I have good news.
If you work with the IRS, either on your own or with a tax debt relief company, you may save your credit. That’s because, as of April 2018, unpaid taxes don’t directly impact your credit anymore.
I know what you’re thinking:
“Why fork over the big bucks if it won’t hurt my credit score?”
Here’s the main issue with that.
If you don’t pay, the IRS will eventually put a lien on your property. They can also file a tax lien on your state or county taxes.
Your credit score isn’t the only thing lenders check when you apply for a loan or mortgage. Mortgage lenders, and some employers, do a public record search to see if you have any tax liens filed against you.
And you guessed it...
Lenders and future employers don’t take kindly to people who don’t pay their taxes.
IRS Writes Off Millions Yearly
See if you qualify for tax relief. Get a free consultation with a tax relief expert to see if you qualify today.
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Your Finances Won't Be Easy
When you owe the IRS, your life can get uncomfortable really quick.
Especially if you bury your head in the sand.
It all boils down to this.
If you don’t send the IRS their money, they will eventually contact you about your back taxes. They have the power to levy your bank accounts, garnish your wages, and put a tax lien on your property.
But they might not stop there.
The IRS can take away your passport and your driver’s license, too!
If it’s been a while since you heard from them, it doesn’t mean they forgot about you. Eventually, the tax collector will come knocking on your door.
When that happens, remember one thing:
You have options, such as:
Back Taxes - What if I Haven't Paid Taxes for 3 or 4 Years or More?
There’s a difference between not paying your taxes and not filing your taxes. Not filing your taxes opens you up to penalties and fees, and that’s it’s own problem.
But not paying your tax bill for three or four years or more can mean you owe the IRS big bucks.
If that sounds like you, here are your best tax relief options:
What Happens if I Can't Pay the IRS?
Not being able to pay the IRS is a pretty big deal. You might be scared. And that’s okay.
Because we’re here to help.
But first, you need to help yourself by filing your tax return on time. And you’ve got to figure out how to pay the rest of your balance.
There’s a good chance you can take care of your tax debt on your own if you owe less than $10,000. A tax relief company can help if you don’t have the time to dedicate to the issue or if you just don’t want to do it yourself.
What about back taxes that reach $15,000 or $20,000 or more?
Here’s what you should do instead:
Leave it to the pros.
Now, I know what you’re thinking:
“I can’t afford to pay a professional!”But hiring an expert can save you time and money by negotiating a better deal with the IRS. And most companies, like Optima Tax Relief, will give you a free consultation. If you can’t pay the IRS, doesn’t it make sense to know all of your options so you can make the best decision?
Get a free second opinion!
By Amy Beardsley
Amy is a personal finance expert and freelance writer and owner of Early Morning Money, She has bachelor degrees in business administration and legal studies, and her work has been featured on The Huffington Post, Money Tips, and many other personal finance publications.