What To Do If You Cant Pay Your Taxes
May 18, 2021
Canada Revenue Agency
If you are struggling with your tax payments, you can work with the Canada Revenue Agency to find ways to pay your tax debt based on your financial situation. Let us help you.
We know these are still challenging times. If you cant make any payment, your tax debt will grow with the addition of interest charges. Lets work together to determine what your options are.
You have several payment options if you cant pay your tax debt in full:
The Servicer Might Pay Any Delinquent Taxes If You Don’t
If your loan isn’t escrowed and you don’t pay the property taxes, the loan servicer might pay any delinquent taxes and then bill you for them. Here’s why: Property tax liens almost always havepriority over other liens, includingmortgage liens and deed of trust liens.
Because a property tax lien has priority, a tax sale wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this kind of sale from happening. The servicer will then demand reimbursement from you, the borrower.
Consider Your Gross Income Thresholds
Most taxpayers are eligible to take the standard deduction. The standard tax deduction amounts that you’re eligible for are primarily determined by your age and filing status. These amounts are set by the government before the tax filing season and generally increase for inflation each year.
The standard deduction, along with other available deductions, reduces your income to determine how much of your income is taxable. As long as you don’t have a type of income that requires you to file a return for other reasons, like self-employment income, generally you don’t need to file a return as long as your income is less than your standard deduction.
For example, in 2021, you don’t need to file a tax return if all of the following are true for you:
- Under age 65
- Don’t have any special circumstances that require you to file
- Earn less than $12,550
Also Check: How Are Home Taxes Calculated
Determine If The Irs Filed A Substitute Return
Just because you didn’t file your return doesn’t mean the IRS won’t file one for you. The IRS may file a Substitution for Return or SFR on your behalf. Don’t think of this as a complementary tax filing service. The substituted return may leave off the exemptions or deductions that rightfully belong to you.
Once an SFR is filed, you will be sent a notice to accept the tax liability as filed in this alternate return. If you don’t respond, the IRS will issue a notice of deficiency. At this point, the tax is considered owed by you and the IRS can begin the collection process. To encourage payment, a levy can be placed on your wages or bank accounts. A federal tax lien may also be placed against your home and real estate.
If an SFR was filed, you don’t have to accept the outcome. You can go back and refile those years and include any available deductions. You may be able to decrease the tax owed and reduce any interest and penalties.
What Situations Can Cause Me Not To Pay Enough Tax
PAYE usually collects the right amount of tax where you have a stable employment that lasts a complete tax year. If your tax affairs are more complicated than this in the tax year, the PAYE system might not be able to collect the right amount of tax during the year.
You might not pay the right amount of tax if, for example, you:
- have more than one job, or pension, or are in receipt of a taxable state benefit or some other untaxed income
- change jobs or retire
- draw income flexibly from your pension
- are widowed or your civil partner dies
- get extra benefits or expenses payments from your employer on top of your cash wages
- need to claim extra allowances or expenses against your tax
- leave the UK or arrive in the UK from overseas.
In these and other situations, HMRC might need to send you a PAYE tax calculation after the end of the tax year when they put all your income and tax details together. They will send you a P800 if they find you have paid too much or too little tax.
The P800 shows your income from employment, pensions and taxable state benefits . Sometimes it may include small amounts of other income. It also includes the allowances and tax reliefs that HMRC think you are entitled to, and a breakdown of what tax you owe against what you have actually paid.
Note that the P800 applies to tax only and not National Insurance contributions , as NIC is calculated each pay day and not recalculated at the end of the tax year.
Read Also: How Much To Withhold For Taxes
Interest & Penalties On An Amended Tax Return
Failing to file a federal income tax return for two consecutive years can result in a wave of penalties, interest, substitute tax returns and headaches. If the Internal Revenue Service discovers the failure to file before you address the problem, it will inform you by letter of its findings and explain the steps you can take to rectify the matter. If you do not take action accordingly, you might experience any of several possible consequences.
What If I Get A P800 Calculation But I Am Supposed To Be Completing A Tax Return
If you normally complete a tax return, but you receive a P800 calculation, do not worry this is probably just an administration error by HMRC. You should inform HMRC of the error, but then prepare and submit your tax return as normal.
If you do not point out the error to HMRC and the P800 calculation shows that some tax is payable, HMRC may contact you in connection with the payment of the tax when you will be submitting a tax return anyway. If, as a result of the P800 calculation, you received a refund, you need to include the amount as a provisionally received refund on the tax return form itself, .
It is important to remember that the P800 calculation may not include all your income. As your overall tax liability can only be known once your income from all sources is added together, the calculation based on your tax return will be treated as the final liability, instead of the P800 calculation.
If you need to complete a tax return for the first time, you need to register for Self Assessment by 5 October following the end of the tax year for which the return is required. As HMRC start issuing P800 calculations from around June for the tax year ending on the previous 5 April, you may receive one before you have registered for Self Assessment. You should not assume that HMRC have looked at your tax affairs just because you receive a P800 calculation. For more information on Self Assessment, look at the page Do I need to complete a tax return?.
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If The Irs Puts You On The Spot By Asking You If You Filed Your Returns Do Not Lie
Lying to the IRS is a crime punishable by up to 5 years in prison. If a revenue officer or other IRS agent asks you if you’ve filed your tax returns, it will put you in a tight spot. If you say you have filed your returns, you will have lied, which is a crime. If you tell the IRS you havenât filed your returns, you’ve admitted to the crime of not filing your taxes. It’s probably a good idea to tell the IRS you’ll have to check and get back with them. Then, you may want to retain a tax professional, such as a CPA, attorney, or enrolled agent, to represent you before the IRS.
How To File Overdue Taxes
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Does Everyone Need To File An Income Tax Return
Not everyone is required to file an income tax return each year. Generally, if your total income for the year doesn’t exceed certain thresholds, then you don’t need to file a federal tax return. The amount of income that you can earn before you are required to file a tax return also depends on the type of income, your age and your filing status.
If your income is less than your standard deduction, you generally dont need to file a return .
In most cases, if you only receive Social Security benefits, you wont need to file a tax return.
If you receive Social Security benefits and also receive tax-exempt income, the tax-exempt income may cause your Social Security benefits to be taxable.
Taxpayers who are claimed as a dependent on someone’s tax return must file a tax return when their earned income is more than their standard deduction, or, for certain children, when their unearned income is greater than $1,100.
What Happens If You Don’t File Taxes
Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.
The Balance / Chelsea Damraska
Filing a tax return begins the running of an important statute of limitations. The IRS will sometimes prepare tax returns based on the information it has in a taxpayer’s file if that person hasn’t filed a return in a while. This is referred to as a substitute for a tax return. The IRS does this so it can assess any tax due and begin collection activities.
You should receive a letter from the IRS telling you that this has happened. It will tell you how much you owe.
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What If You Are Unable To Pay The Full Amount Of Taxes Owed
If you are unable to pay the full amount you owe, you may be able to make a payment plan with the IRS. This is also known as an installment agreement. When you make a payment plan with the IRS, you agree to pay the amount of taxes you owe in an established, extended timeframe. If you believe you could pay the full amount of your taxes owed within the timeframe, you may want to consider requesting a payment plan.
- Offer in Compromise: An Offer in Compromise may be right for you if you owe a significant amount of tax, have minimal income and assets or cant afford a long-term repayment plan. When you agree to an Offer in Compromise, you will pay less than the tax you currently owe to settle your debt.
- Non-collectible status: You may also be able to get your tax debt declared non-collectible if the amount you owe is particularly burdensome and you have a hardship that makes it impossible to pay the taxes you owe.
At BC Tax, we have been able to help negotiate successful installment agreements for taxpayers across the nation. If you believe your tax liability was calculated incorrectly or you need help with paying your owed taxes, we can help you find a tax solution that is right for you.
We have helped our clients obtain affordable repayment plans to stop collection actions and save tens of thousands on back taxes. We have also helped our clients substantially reduce the amount of tax debt owed through Offers in Compromise.
File Your Missing Returns
You may want to file your old returns before a demand is made. There’s no time limit for submitting a previously unfiled return. However, if you’d like to claim your refund, you have up to 3 years from the due date of the return. It may be a good idea to speak with an experienced tax attorney or CPA before amending or filing old returns. Here are some benefits of getting missing tax returns filed:
- Protect your Social Security benefits: If you’re self-employed and don’t file, you won’t receive credits toward Social Security retirement or disability benefits.
- Avoid issues obtaining loans: Loans may be denied or delayed if you cannot prove income by providing tax returns or reportable income.
- Not having to worry about your unfiled taxes: Once your tax issue is resolved, it will free up your time for more enjoyable pursuits.
Also Check: Can You File Taxes If You Did Not Work
What Questions Should You Ask A Tax Professional
When you choose to work with a tax professional, there may be a few questions you want to ask, such as:
- What licenses do you have?
- What is the price for your services?
- How many unfiled tax returns do I need to file?
- Should I hand-deliver or mail in my tax returns?
- Do you have a project plan for my tax situation?
- What is your preferred method of communication?
- How will I receive a refund if I am owed one from the IRS?
- Who will I be working with from start to finish on my tax situation?
Get Your Return Filed Or You Could Lose Your Right To Claim A Tax Refund
You have 3 years from the due date of the return to file and claim a refund. In a normal year where April 15th falls on a weekday, this would mean you have until April 15th 3 years from that date to file and get your refund. But, you have until July 15 of 2023 to claim your 2019 tax refund. This is because the 2019 tax deadline – which would have been April 15 – was changed to July 15th because of the coronavirus pandemic.
Similarly, the deadline to claim a refund for 2020 is May 17, 2024, since the 2020 deadline has been changed to May 17, 2021, because of COVID-19. If you file an amended return to get a refund, you have the same statute of limitations for the amended return as for the original return. If you got an extension to file your original return, you have three years from the date you filed the return. This assumes you didn’t file late.
You may not know whether you have a refund due. But, if you had taxes withheld, you probably do have a refund due. Even if nothing was withheld, you may have money due through the earned income tax credit, the Affordable Care Act health insurance premium credit, the child tax care credit , or other refundable tax credits.
Read Also: How Are Property Taxes Calculated In Texas
How To Avoid A Failure
If youre going to miss the tax-filing deadline, help yourself avoid the penalty for not filing taxes by getting an extension to file your tax return. A tax extension can get you an extra six months to get your tax return to the IRS.
Remember, however, that a tax extension only gets you more time to file your tax return. It does not get you more time to pay your taxes. Some people, such as natural disaster victims, certain members of the military or Americans living overseas, may automatically get more time to file.
If you miss the tax extension deadline, though, that failure-to-file penalty could come back to haunt you.
What Is The Penalty For Failure To File Taxes
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Other Consequences For Paying Taxes Late In 2022
If you don’t pay taxes, sometimes the IRS will summon you to a local office to confirm your information. You may be asked to bring your tax documentation and file a tax return in person.
If you owe at least $54,000 , the government won’t issue you a passport or renew your passport.
In some cases, the IRS may transfer your account to a private collections company. While nobody likes dealing with government bureaucracy, collections companies are typically much more unpleasant to work with and use far more aggressive tactics to get you to pay up.