Back Taxes

Back taxes refer to unpaid federal income taxes from previous years. If you do not pay the full amount you owe by the original due date, the balance becomes subject to interest and a monthly late‑payment penalty. There is also a separate penalty for failing to file a return, so you should always file on time, even if you can’t pay everything.

Unpaid taxes continue to accrue interest, and the IRS will eventually begin its collection process. To minimize added costs:

• File and pay what you can now. The IRS encourages taxpayers to pay as much as possible with their return; doing so reduces interest and penalty charges. Electronic payments through Direct Pay or the Online Payment Agreement can be scheduled in advance and provide immediate confirmation.
• Consider payment options. If you cannot pay in full, you may qualify for a short‑term payment plan (up to 180 days) or a long‑term installment agreement. Short‑term plans have no user fee but interest and penalties continue, while long‑term agreements let you make monthly payments over time.
• Contact the IRS if you can’t pay anything. If paying would prevent you from meeting basic living expenses, you can request a temporary delay of collection. The IRS may suspend collection actions when it determines you cannot pay. However, interest and penalties continue to accrue and the IRS may file a federal tax lien to protect its interest.
• Explore other resolution tools. In addition to payment plans, the IRS offers offers in compromise (to settle for less than the full amount) and penalty abatement. See the earlier blog posts for details on these programs.

Ignoring IRS notices can lead to enforced collection actions such as levies or liens. It’s always best to proactively address your tax debt, pay what you can and work with the IRS to resolve the remaining balance.