How To Pay Back Taxes

Here’s How To Check Your Child Tax Credit Payment Status

The easiest way to see what’s happening with your previous checks is to log in to the IRS Update Portal to view your payment history. To use it to manage all of your advance payments, you’ll need to first create an ID.me account.

If the portal says your payment is coming by mail, give it several business days to arrive. If you have direct deposit set up, make sure all the information is accurate. If you haven’t set up banking details in the portal, or if the bank account on file with the IRS has closed or is no longer valid, you should expect all further payments to come as paper checks.

If your payment history in the portal says that the money was sent by direct deposit, check your bank account again in the next few days to make sure it’s cleared. According to the White House website, transactions will show the company name “IRS TREAS 310” with a description of “CHILDCTC” and an amount for up to $300 per kid . Don’t get this deposit confused with those for stimulus checks, which show up as “TAXEIP3” when deposited. Also, if you’re waiting on a tax refund, it’ll show up as “TAX REF.”

Back Taxes Individual Taxpayers

If you have paid too little tax in the form of withholding during the year, you must make up the difference later by paying a back tax. All the information necessary for paying your back tax is available in your tax decision and in MyTax the information you need is the Tax Administrations bank account number, the reference number, the amount of back tax and the due date.

• See the guidance: How to view and pay back taxes in MyTax

Tax Refund Calculator: How Much Will John Get Back In Taxes

John is a single 30-year-old with no dependents. Last year, he made $75,000, withheld $15,000, and collected no government benefits.

Check out how much he could get for his 2017 tax refunds .

Subtract the red circle from the blue for the refund.

$3,105. Just about the average for tax refunds! AND with the new tax laws, he stands to get even more in his refunds in 2019 .

How about someone whos married with children?

Bonus:

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How Repayments Can Impact Your Taxes

The timing of when you repay a CERB amount may impact your taxes.

If you repaid a CERB amount:

• before December 31, 2020 â your repayment should be reflected on your 2020 T4A slip
• after December 31, 2020 â you will be taxed based on the full amount shown on your 2020 T4A slip

For more on taxes, go to: Impact on your taxes

Use Online Tax Software

These days, you can DIY your own tax return and save a bundle on tax filing fees. Online tax software, like TurboTax, makes it easy: you can instantly import tax information from the Canada Revenue Agency with Auto-Fill My Return. The software includes a complete list of tax deductions to make it easy for customers to find the deductions that apply to them.

Once your information is entered, a review section offers suggestions on credits and deductions that may apply to your situation, as well as ones that definitely apply. The software then guides you back through your tax return and helps apply the recommendation.

The bottom line? TurboTax offers a cheap and easy way to file your taxes and get the most out of your tax return. Whether youve got a straightforward tax return or a complicated one involving business income and expenses, TurboTax has software suited to your needs at an affordable price. In particular, TurboTax Self-Employed is the only software in Canada that is designed specifically for people with self-employed income and provides expert guidance specific to these individuals. If youve got questions, TurboTax Free customers can upgrade to a paid option that includes full guidance, interview-based profiling, and other features.

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What People Get Wrong About Tax Refunds

I have a confession to make: I actually love the kooky weirdo financial experts you see on TV or on their online soapbox who lecture you about taxes. Because 99.99% of the time they are DEAD WRONG about money.

One of their favorite go-to buzz phrases:

If youre getting a tax refund, youre giving the government free money!

TRANSLATION: If you get a refund, that means the government took your money and earned interest on it for an entire year!!

Then these experts are typically out of breath because of their own brilliance.

Let me break this down for you.

The average tax refund is about $3,000. Lets assume that money would have been sitting in a savings account with a 1.45% APY .

How much interest did you lose through your tax withholdings? $3.62 a month.

OMG!! The government is stealing the equivalent of a latte each month! Time to dump a bunch of tea in Boston Harbor.

Heres a hard truth: If you had that money, you probably would have spent it. Thats not a slight against you thats just human psychology. We as humans have an incredibly finite amount of willpower. Thats why cost-saving measures like cutting out lattes or lunch at your favorite sandwich spot arent realistic.

And yes, technically, theyre right. You could have been earning interest on the money. I live in a world of reality, however, which means that technically isnt always correct.

Back Taxes May Accrue Interest

Your back taxes are subject to late-payment interest with relief. The interest period begins on 1 February 2021 and continues up to the due date of the back tax concerned. The interest is included in the sum total that you see in MyTax and your tax decision. The rate of late-payment interest with relief is 2% in 2021. However, we always deduct 20 from the amount you have to pay . Read more about late-payment interest with relief.

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Ask For An Abatement Of Penalties

The IRS often reduces or removes penalties and interest on the penalties if a taxpayer writes a letter explaining the situation.

For example, if you had an unusual tax event, you made an honest mistake, or you or your spouse had a serious illness, the penalties that you owe to the IRS may be waived off.

Be sure to ask for an abatement in your letter.

Changes In The Build Back Better Act

The Build Back Better Act, which is currently working its way through Congress, would extend the child tax credit enhancements for one more year . However, the legislation would also make some changes to the 2021 credit.

• What Are the Income Tax Brackets for 2021 vs. 2020?

Two of the proposed changes would affect the pay back rules. First, to make it easier for some families to keep some or all of an overpayment, the bill would increase the “repayment protection amount” multiplier from $2,000 to $3,000 for children six to 17 years of age, and to $3,600 for children five years old or younger.

Second, regardless of your income, you would have to pay back any overpayment if the IRS determines that a child was taken into account for purposes of calculating your monthly child tax credit payments because of fraud or the intentional disregard of rules and regulations. Planning or making arrangements with someone else have a child taken into account for monthly payments more than once would be treated as intentionally disregarding rules and regulations. Merely expecting another person to take a child into account more than once would also be a violation that forces repayment.

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When You Cant Pay Unpaid Taxes Owed

When you have unpaid tax and you cannot pay, you are still expected to pay the IRS. For those individuals that cannot pay in full, the IRS offers many other methods of payment. These methods range from making monthly payments toward the tax amount owed to paying only a fraction of what is actually owed and calling it even. Depending on your financial situation, the IRS will always be willing to work with you.

The Electronic Federal Tax Payment System

The Electronic Federal Tax Payment System is a web service operated by the U.S. Treasury Department for processing federal tax payments. You must set up a profile account with your bank account information, but then you can make payments for various tax obligations, including extension payments, estimated taxes, or even tax balances for previous years.

You can schedule a payment in advance, and it will automatically be withdrawn from your bank account on the date you designate.

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What Tax Documents Do I Need To File Back Taxes

When was the last year you filed? Do you have a copy of that tax return? Do you still have W-2s and other tax documents for the years you didn’t file?

You can request copies of your tax documents from the IRS if youre missing anything by filing Form 4506-T, or you can contact your employer or the institution that would have sent them to you.

Keep in mind that current or former employers or other establishments might not still have these documents on file, or at least they may not be easily accessible. There might also be a fee if you choose this option.

At a minimum, youll need Forms W-2 and 1099 for any income you brought in during the year in question, as well as specific tax returns and forms for that tax year. For example, you cant file a 2020 Form 1040 to report 2019 income. You should also gather supporting documentation of anything you spent that year that might be tax deductible or that will qualify you for tax credits, such as bank statements and credit card statements for that period of time.

How Can I File And Pay My Back Taxes

Its best to use reliable and easy-to-use software if you’re going to prepare your tax returns yourself. Plan on spending a few hours on each tax return you have to file. There are tax software programs that can help you for free.

Again, make sure youre using software and forms for the appropriate tax year. Regulations vary from year to year, and the software settings can be critical for compliance as well as your liabilities or refund.

You might get a better result by hiring an experienced tax professional because they can help you with more complicated tax compliance and know how to deal with the IRS, if necessary.

Look for someone with significant experience in preparing back taxes if you decide to use the services of a professional. This would be the way to go if you need advice on handling incomplete tax documentation, or an advocate who will negotiate with the IRS on your behalf.

Youll need to print out the back tax returns and mail them in to the IRS to officially file them. You cant do it online.

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How To Repay Back Taxes In Canada

Not paying your back taxes is serious business. Those most susceptible to letting taxes lag from one year to the next include part-time workers and the self-employed. Statistics Canada shows that in 2012, more than 2.6 million Canadians worked for themselves.

Disciplining yourself to set aside money every week in a tax account requires a lot of discipline, notes Caroline Thompson, president of Thompson Accounting and Tax Inc. This is especially true if money is tight and the economy is poor.

However, there are ways to file for past years and repay back taxes. Some options even offer ways to forgo penalties and prosecution.

Eliminating Tax Debt By Filing Bankruptcy

If you cant pay your tax debt to the government, you might consider filing for bankruptcy. There are many advantages and consequences to filing for bankruptcy.

There are many differences between a consumer proposal and bankruptcy. But both debt forgiveness programs reduce or eliminate unsecured debts, including tax debt. An LIT can help you understand if this solution makes sense for you.

Request a call at any time. One of our local LITs will review your options for repaying your tax debt and assess your financial situation for free, with no obligation.

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What If I Cant Pay My Taxes

If you cant pay your tax bill by the time it is due, dont avoid the bill. File Form 9465, Installment Agreement Request, to set up installment payments with the IRS. You can complete the installment agreement online too. Completing the form online can reduce your installment payment user fee, which is the fee you owe to the IRS for setting up a payment plan.

The IRS must allow you to make payments on your overdue taxes if:

• you owe $10,000 or less, or
• you prove you cant pay the amount you owe now, or
• you can pay off the tax in three years or less.

Additionally, you must agree to comply with the tax laws. You also cant have had an installment agreement with the IRS in the past five years.

Payments can be made by direct debit to your bank account, check or money order, credit card, debit card, or one of the other accepted payment methods. To be charged a lower fee, you may want to set up an online payment agreement and/or agree to make your payments by direct debit.

Anticipate Late Fees And Penalties

Unfortunately, the IRS is going to charge you interest and penalties on any amount you pay late. Like running a balance due on a credit card, these charges are going to make it harder to pay what you owe.

The more you’re able to pay on time, the less interest and penalties you’ll be assessed.

The IRS will eventually send you a bill, but you don’t have to wait to get the bill to make additional payments.

Pay what you can when you file your return, then send in whatever additional payment you can afford each payday using Form 1040-V.

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Resolving State Unpaid Taxes

State taxes that not paid in full will have to be addressed separately from IRS taxes owed. Each state has its laws and their own set of resolutions. Most states do follow closely to what the IRS has, but they all require separate filings. To find which state tax resolutions are available, review the state guide to see what is available in your state.

An Offer In Compromise

An offer in compromise is a bit more complex. It involves reaching an agreement with the IRS to pay less than your full balance due. An offer in compromise is typically only approved if youre unable to pay through an installment plan and comes with an application fee. Youll probably need the help of a professional for this option.

You must establish that you cannot pay your balance through an installment agreement or by any other means. All your past due tax returns must be filed before the IRS can grant you this relief, and you must have made some payment toward taxes in the current year, either through withholding from your paychecks or by sending in quarterly estimated payments, even though you havent filed a tax return for the year yet.

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Can I Still Get A Refund From Filing Back Taxes

If the IRS owed you a tax refund any year, you need to file your return within three years of the original due date or you forfeit your refund. If you had filed for a tax extension that year, your due date was likely October 15.

The three-year deadline also applies to individuals who would have gotten a refund only because of certain tax credits, like the earned income tax credit.

If you need to file a tax return for multiple years, the IRS may also withhold all of your refunds until you file all of your back taxes.

Read more: Will I get a tax refund this year?

Maximize Your Tax Credits

Tax credits are different than tax deductions and come in two flavours: refundable and non-refundable.

• A non-refundable tax credit is applied directly against your tax payable. That means if you have tax owing of $500 and get a tax credit of $100, you now only owe $400. If you dont owe any tax, non-refundable credits are of no benefit.
• A refundable tax credit, such as the GST/HST credit, means you will receive the credit even if you have no tax owing.

Here are the best ways to take advantage of tax credits:

• Basic Personal Amount: Every Canadian resident is entitled to claim the basic personal amount on his or her tax return. For 2019, the basic personal amount is $12,069. What this means is that instead of paying taxes on your entire income, youll just be taxed on the remaining income once the basic personal amount has been applied. In other words, think of it as your first $12,069 worth of income being considered tax-free or tax-exempt.

• Spousal Amount: If you support your spouse or common-law partner, and their net income is less than $12,069, you can claim all or a portion of the spousal amount . The amount is reduced by any net income earned by the spouse. The spousal amount can only be claimed by one person for the spouse or common-law partner.

Other Eligible Tax Credits:

• , and exam fees
• Medical expenses
• Donations or political contributions

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