How Long Do You Have To Pay If You Owe Back Taxes
This can vary from making at least a partial payment now to up to 72 months to pay off your taxes in installments. To better understand your options and the implications, there are ways to take action.
The IRS phone number can be found in the top right-hand corner of the notice or letter. Typically, you only need to contact the IRS if you dont agree with the information, if they requested additional information, or if you have a balance due.
State Taxes On Capital Gains
Some states also levy taxes on capital gains. Most states tax capital gains according to the same tax rates they use for regular income. So, if you’re lucky enough to live somewhere with no state income tax, you won’t have to worry about capital gains taxes at the state level.
New Hampshire and Tennessee don’t tax income but do tax dividends and interest. The usual high-income tax suspects have high taxes on capital gains, too. A good capital gains calculator, like ours, takes both federal and state taxation into account.
Find Out How Much You Owe
The first step is to find out how much you owe. To find out how much you owe and you havent filed, you should file your back taxes. If youve already filed, you can use the IRSs online tool to find out what you owe, or you can call the IRS at 829-1040. Sometimes the online system is not available, in this case, you may want to request a transcript of your tax return.
Alternatively, if you have any notices from the IRS, they should show how much you owe. Usually, you owe more than the letter says because interest and fees are continually accruing on the account.
If you owe state taxes as well, you will likely have to call your state agency to get the details. Many states dont offer an online portal to access this information like the IRS
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Dreading The May 17 Tax Deadline Because You Cant Pay Your Bill A Former National Taxpayer Advocate Offers Advice On Tackling The Debt
May 17 is National Tax Day, but its also a day of reckoning for millions of people who owe money to the IRS but cant pay. If you are one of these people, how you decide to handle this debt could either soothe your anxiety or send you on an expensive journey that ends with more heartache than help.
So what should you do?
Let me share what Nina Olson, executive director of the Center for Taxpayer Rights, had to say. Olson, who formerly served as the independent national taxpayer advocate for 18 years, has witnessed the financial calamity that can ensue when people who owe the IRS ignore the problem or seek refuge from pricey tax debt relief operations. The Taxpayer Advocate Service is an independent organization within the IRS that helps people resolve issues with the agency.
I always tell people that the worst thing that they can do is nothing, Olson said during an interview. The IRS is not going to go away. It chugs along like a machine, and if you dont respond to it, it will reach out to you in the form of levying your bank account or garnishing your paycheck.
Heres what Olson says you should and shouldnt do if you cant pay your tax debt.
Dealing With Back Taxes Owed
When you discover that you owe back taxes, its best to resolve the issue as quickly as possible. Ignoring back taxes only compounds the problem. Also, dont assume you can wait out Uncle Sam. The IRS has 10 years to collect on your back taxes. Even after a decade, there are exceptions to this rule.
If you are unable to pay your back taxes, there are programs that can help. These include qualifying for a partial reduction of your debt. This is done through a partial payment installment agreement. Or you can do an IRS offer in compromise. Another option is the Fresh Start Program.
I Received An Irs ‘math Error’ Notice What Is It
Millions of Americans have received confusing “math-error notices” from the IRS this year — letters saying they owe more taxes. Once they get the notice, they have a 60-day window to respond before it goes to the agency’s collection unit.
From the start of the year to August, the IRS sent more than 11 million of these notices. According to the Taxpayer Advocate Service, “Many math error notices are vague and do not adequately explain the urgency the situation demands.” Additionally, sometimes the notices “don’t even specify the exact error that was corrected, but rather provide a series of possible errors that may have been addressed by the IRS.”
The majority of the errors this year are related to stimulus payments, according to the Wall Street Journal. They could also be related to a tax adjustment for a variety of issues detected by the IRS during processing. They can result in tax due, or a change in the amount of the refund — either more or less. If you disagree with the amount, you can try contacting the IRS to review your account with a representative.
Pick Up The Phone And Call The Irs
Not a big fan of using online tools to deal with your federal taxes? Dont have all the info you need to access the online service? Dont worry, youve got other options.
Your first option is to give the IRS a call. You may have to deal with a wait time, which averages about 27 minutes during post-filing season. But once youre connected, a representative from the IRS should be able to tell you how much you owe.
If youre an individual taxpayer looking into your balance, you can call the IRS at 1-800-829-1040 between 7:00 a.m. and 7 p.m. local time.
Representing a business? Call the IRS at 1-800-829-4933 instead between 7:00 a.m. to 7:00 p.m. local time.
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Request An Offer In Compromise
An offer in compromise allows you to offer a lower amount to the IRS, and if approved, the IRS will forgive the remaining balance. However, you must qualify for the OIC.
Before the IRS approves an OIC, it will consider a few factors, which include your ability to pay, your income, expenses and your asset equity.
Your asset equity is determined by subtracting any amount owed to creditors or others from the value of an asset. For example, if your investment property is worth $250,000 and you have a mortgage of $175,000, your asset equity is $75,000.
To qualify for an OIC, the IRS requires you to be current with both your tax return filings and estimated tax payments. Also, if you are a business owner and have employees, the IRS requires you to make all federal employment tax payments for the current quarter to qualify. You must also demonstrate you are unable to pay the full balance through alternative options, such as an installment agreement or other financial means. If you are in the process of filing bankruptcy, you cannot enter into an OIC with the IRS.
You can find out if you may be eligible by using the IRS pre-qualifier tool. This tool guides you through questions about your financial information and tax filing status to determine a potential offer amount. But it should only be used for informational purposes. The IRS bases its decision on your completed application, Form 656, and its preliminary investigation.
How Do I Know If I Owe The Irs Back Taxes And How Much
There are four ways to know if you owe the IRS money.
If you owe back taxes, ignoring letters doesn’t make the IRS, or your tax debt go away. In fact, it can make things worse. Just like any other collections agency, expect letters and additional fees until the issue is resolved. As a government entity, the IRS can also garnish wages, put a lien on your property, and keep future refunds.
Don’t expect to wait them out: The IRS rarely forgives debts and has 10 years to collect them before they are written off. This is known as a Collection Statute Expiration Date . Usually, once that date is passed, the IRS has no choice but to forgo your debt. But beware, there are exceptions: The CSED can be extended through various means, such as entering into an installment agreement, having property seized, or entering a period of non-collectability.
Nearing your CSED date? You may qualify for a partial reduction of your debt by either submitting partial payment installment agreement or an offer in compromise.
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Request A Penalty Abatement To Reduce Your Tax Bill
You may also want to contact the IRS to see if you can have any penalties waived through the first-time penalty abatement program, reasonable cause relief or statutory exception. You may qualify for the first-time penalty abatement program if you have not had penalties assessed to your account for the prior three years, you have filed all tax returns or filed an extension and you have paid or made arrangements for any taxes due.
If you do not qualify for the first-time penalty abatement, you may want to consider penalty relief through a reasonable cause. The IRS will consider your request if you can establish the following reasonable causes:
- You experienced a fire, casualty, natural disaster or other adverse weather conditions
- You are unable to obtain your financial or tax records
- You or an immediate member of the taxpayers family were impacted by a serious illness or death
Finally, you may also request penalty relief if you received incorrect written advice from the IRS, you may request relief through statutory relief. You will need to file a Form 843, Claim for Refund and Request for Abatement to request for penalty relief. Your form should include the written advice you relied on, the amount of taxes and penalties related to the advice.
How Long Will I Have To Wait For My Federal Refund Check To Arrive
The IRS usually issues tax refunds within three weeks, but some taxpayers have been waiting months to receive their payments. If there are any errors, or if you filed a claim for an earned income tax credit or the child tax credit, the wait could be lengthy. If there is an issue holding up your return, the resolution “depends on how quickly and accurately you respond, and the ability of IRS staff trained and working under social distancing requirements to complete the processing of your return,” according to its website.
The date you get your tax refund also depends on how you filed your return. For example, with refunds going into your bank account via direct deposit, it could take an additional five days for your bank to post the money to your account. This means if it took the IRS the full 21 days to issue your check and your bank five days to post it, you could be waiting a total of 26 days to get your money. If you submitted a tax return by mail, the IRS says it could take six to eight weeks for your tax refund to arrive once it’s been processed.
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What Do These Irs Tax Refund Statuses Mean
Both IRS tools will show you one of three messages to explain your tax return status.
- Received: The IRS now has your tax return and is working to process it.
- Approved: The IRS has processed your return and confirmed the amount of your refund, if you’re owed one.
- Sent: Your refund is now on its way to your bank via direct deposit or as a paper check sent to your mailbox.
Find Out How Much You Owe The Irs Using The Online Tool
The IRS offers an online tool to help you figure out how much tax you owe. The tool shows the balance for each tax year including the principal amount and any penalties or interest. It also shows payments youve made in the last 18 months and your payoff amount.
One of the reasons why the IRS online tool is handy because the updated information it provides. This is probably the most convenient way to get access to information on your tax dues. To use this service, you need to have an account in the IRS website. Make sure that you have the following information ready when signing up:
- Social security number
- Date of birth you need your
- Filing status
- Mailing address from your last tax return.
- E-mail address
- Mobile phone with your name on the account.
- Account number from a mortgage or home equity loan, a car loan, or a credit cardthat also needs to be in your name
The great thing about the online tool is that it updates interest and penalties every 24 hours which makes the data reliable. You can also view or print transcripts here. If you would like to request the transcript to be mailed to you, it would take five to ten days. Payments made usually takes one to three weeks to post.
The tool is available during the following days and times:
- Monday to Friday: 6 a.m. to 12:30 a.m. ET
- Saturday: 6 a.m. to 10 p.m. ET
- Sunday: 6 p.m. to 12:00 a.m. ET
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Transfer Funds From A Bank Account
If you have enough funds available in your bank account, using Direct Pay is the easiest, fastest, and most secure way to submit payment. Keep in mind that Direct Pay does have some limitations, however. You can only make two payments within a 24-hour period, and each one has to be less than $10 million. If you need to settle a larger tax balance, contact the IRS about making a wire payment instead.
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Refigure Your Tax Liability And Withholding As Needed
Making sure youre having enough tax withheld or paid in estimated taxes is never a finished task.
Whenever your situation changes you get married or divorced, you take on a freelance project, for example recalculate your income if necessary and go through the Form W-4 section under the Next Year main tab in TaxAct again.
Its a little more work than just paying too much or hoping for the best, but it pays off by giving you a lot more peace of mind about your standing with the IRS.
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How Do I Know If I Owe Taxes This Year
When filing your tax return the TurboTax program will let you know if you have taxes due or if you will be receiving a refund. If you wish to find out if you owe past taxes due. You can call the IRS toll-free telephone number: Individual taxpayers in the UnitedStates: 800-829-1040, Monday through Friday, 7 a.m. to 7 p.m. local time.
To determine if a debt is owed, and whetheran offset will occur, you can contact Treasury OffsetProgram Call Center at 304-3107. Enter the requiredinformation and it will let you know if you have any existing debt on file.
Net Investment Income Tax
Under certain circumstances, the net investment income tax, or NIIT, can affect income you receive from your investments. While it mostly applies to individuals, this tax can also be levied on the income of estates and trusts. The NIIT is levied on the lesser of your net investment income and the amount by which your modified adjusted gross income is higher than the NIIT thresholds set by the IRS. These thresholds are based on your tax filing status, and they go as follows:
- Single: $200,000
- Qualifying widow with dependent child: $250,000
- Head of household: $200,000
The NIIT tax rate is 3.8%. The tax only applies for U.S. citizens and resident aliens, so nonresident aliens are not required to pay it. According to the IRS, net investment income includes interest, dividends, capital gains, rental income, royalty income, non-qualified annuities, income from businesses that are involved in the trading of financial instruments or commodities and income from businesses that are passive to the taxpayer.
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You May Be An Innocent Spouse
Are you widowed, divorced, or separated? Do you have tax problems that arose out of the actions of your former spouse? If you can show that you played no role in your former spouse’s actions to avoid paying taxes, you may be entitled to innocent spouse relief. That relief could result in the entire tax bill being written off. Individual states also grant innocent spouse relief.
Fill Out A Form And Drop It In The Mail
Another option outside of the online portal is to contact the IRS by sending a form through snail mail.
While this is a viable option for any taxpayer, keep in mind that it will take much longer due to the nature of mail. And if you do owe, penalties and interest will continue to accrue while you wait for a response.
Youll also want to make sure the IRS has your current address. If they dont, theyll send their response to the most recent address they have on file, which may not be your current one.
Individual taxpayers who filed a Form 1040, 1040A, or 1040EZ can request an Account Transcript. This transcript will only cover a single tax year and might not include any tax penalties, interest, or additional charges.
If you filed another type of form or are representing a business, youll need to submit Form 4506-T, Request for Transcript of Tax Return. Once the IRS receives and processes your 4506-T form, they will send you a free transcript.
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