What Can You Do If You Cannot Pay Your Cra Back Taxes
If you have CRA tax owing, and youre not able to pay it, your first instinct might be to avoid filing or to try to ignore the CRA, hoping that the issue will go away. The reality is that, if you owe taxes, the CRA will find you. As mentioned, not filing your taxes could be considered tax evasion, which is a crime, so you will certainly want to file even if you cannot pay.
What you should do is attempt to arrange a fair and affordable payment plan that CRA will accept and that you can live with. Take a realistic look at your budget and consider what you can pay. Expect the CRA to push you hard on what they consider fair.
However, its important to know that negotiating a payment plan with CRA yourself can be very risky. When contacting the CRA directly, you are opening yourself up to very well-trained collection agents who have significant power under the Income Tax Act and the Excise Tax Act. They know how to lead you into divulging more information about yourself than you are required to provide, and this leaves you in a potentially dangerous situation where they know the details of how to squeeze you.
What To Do If You Cant Pay Your Taxes
May 18, 2021
Ottawa, Ontario
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:
What Happens If You Don’t File Or Don’t Pay
If you find yourself in trouble, you do not want to skip filing your tax return or fail to pay your taxes altogether. The government has the authority to forcibly seize your assets if you don’t try to make good on your income tax liability. In the most extreme situations, you may be subject to jail time.
There are a number of scenarios that can lead to penalties and interest charges. The two main ones are filing your tax return late and paying your taxes late.
Residents and business owners in Louisiana and parts of Mississippi, New York, and New Jersey were granted extensions on their deadlines for filings and payments to the IRS due to Hurricane Ida. Due to the tornado in December 2021, taxpayers in parts of Kentucky were also granted extensions. You can consult IRS disaster relief announcements to determine your eligibility.
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How To Avoid Irs Collection
Remember that the IRS wants to work with you to resolve your tax debt before taking actions like liens and levies. A big part of the resolution process is communication.
If you dont think your tax bill is correct, call the IRS at the number on your bill or talk to your local IRS office. You can also authorize an expert like a Jackson Hewitt Tax Pro to talk to the IRS for you. If the tax bill is incorrect, the IRS can revise it.
If the bill is correct and you cant pay it all right away, you can still avoid IRS collection. For example, you can secure an installment agreement, which is a monthly payment plan that allows you to pay over time. There are several types of agreementssome quick and easy to getthat you can apply for online, by phone, mail, or in person.
There are also options for people who cant afford any payments, such as currently not collectible status, which pauses payments and collection, and the offer in compromise, which allows you to settle your tax debt for less than you owe. Only people with specific circumstances will qualify for these options, so its a good idea to get the help of a tax professional to understand and pursue your options.
Harder Than Ever To Get Away Without Paying Taxes
The IRS may be large and sometimes slow, but the agency has one thing on its side: information. An incredible amount of information is fed into IRS computers every year, and theres a good chance some of that information concerns you.
For example, each year, your employer sends a copy of your Form W-2 to the IRS. The agency then waits, expecting a tax return from you based on your wages indicated on that W-2.
In addition, banks, investment companies, and businesses send Form 1099 to the IRS to report various types of income you received throughout the year. If you sell real estate, the IRS receives a form showing how much you received from the sale.
It may take the IRS some time to match your income up with your tax return, but eventually, they will. If you didnt file your return, theyll figure that out too.
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Dont Ignore The July 15 Deadline Even If You Cant Pay
Regardless of which of these three options you decide to pursue, do not miss the July 15 deadline to actually file your 2019 return if you havent already. Even if you cant pay, theres absolutely no advantage to not filing, and youll end up with additional penalties if you dont.
Taxpayers who still need to file their taxes and are worried about owing should still go online and file, advised Greene-Lewis. They may be surprised at the tax deductions and credits they are eligible for once they go online and start their taxes.
Related: Review CNN Underscoreds picks for the best tax software of 2020
And if you dont currently have the money to pay your taxes, dont panic. You arent the only one, especially in this climate. Your best bet is to take advantage of one of the above payment options, or just get in touch with the IRS and let them know your situation.
It is critical to contact the IRS as soon as you know that you will not be able to pay your tax liability and to maintain contact periodically to update your status, said Groves. Maintaining communications reduces the risk that the IRS will employ collection actions such as tax levies and liens to protect their interests.
Having money issues due to the coronavirus pandemic? Read CNN Underscoreds previous stories in this series:
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Apply For An Installment Agreement
If you think it will take you more than a few months to pay your tax liability, consider applying for an installment agreement. You can apply online at IRS.gov or by mail using Form 9465-FS.
An installment agreement can prevent the IRS from taking enforced collection action. You’ll still owe penalties and interest, but your monthly payments let the IRS know that you intend to make good on what you owe.
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Property Tax Appeal: Cannot Afford Property Taxes
Homeowners can also see if they can do a property tax appeal.
- Check to see what neighbors are paying for property taxes or check to see what similar properties are being taxed for within a one square mile radius
- If similar and like properties like are being taxed less, homeowners can do a property tax appeal with the county
- This should be done regardless of whether they can or cannot afford the property taxes
- Another option is to enter into an installment plan of redemption which is a 5-year property tax payment plan that allows a homeowner to repay property taxes in arrears in five separate installments
- Homeowners need to check with their lender whether they will allow such a repayment agreement for paying property taxes in default
- County might also have special property tax reduction plans for seniors, disabled, and blind homeowners
Correct The Problem So You Dont Have An Unaffordable Tax Bill Again
Work with a tax expert you can trust to make sure youre not stuck with taxes you cant afford again. That may mean setting aside profits from a side business, making quarterly tax payments, or adjusting the withholding from your paycheck. Whatever the issue, a tax pro will be able to spot the problem and help you fix it going forward.
To save time and hassle, make sure you gather the right paperwork the first time around. Not sure what kind of paperwork you need? Download our free tax preparation checklist.
I messed up last year by not setting aside taxes for my second job or home business, she said.
Not wanting to face the same situation the following year, she enlisted the help of a tax expert who set her on the right tax plan.
Now I have a CPA to help organize quarterly payments for this year so it won’t happen again! she said.
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Repository Of Unsold Properties
If the home doesnt sell at the judicial tax sale, it goes into the repository of unsold properties. . The bureau may then, with the written consent of all the taxing districts where the property is located, sell the home without further court approval or publication in a newspaper. .
The property is then conveyed to the purchaser free and clear of liens. .
A New Mom Missed A Filing Deadline
When Sarah had a baby in 2016, she was hit by postpartum depression. Tax time came and went, I filed an extension but was no better by October, she said. I knew it was bad, but I simply could not make myself do the taxes or talk to an accountant. I had left my relationship after abuse, so had no significant other to help.
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Recovering The Debt Through County Court Proceedings Property And Pensions
We can use County Court processes if you have assets to cover the debt and refuse to pay it.
In Scotland, a Summary Warrant can be used.
We will review your circumstances before deciding which of the following options to use.
Charging orders
A charging order is an order of the court. It stops a debtor from selling specified assets without first paying what the court has ordered they must pay out of any proceeds.
The most common asset subjected to charging orders in the UK is land or property but charging orders can be placed on other assets, such as some financial products including:
- securities
- personal equity plans
- Individual Savings Accounts
Charging orders give creditors like HMRC the power to recover debts from the sale of a property:
- when the customer who owns the property sells it
- through a court action known as an order for sale, to force the customer to sell the property
In Northern Ireland, we can obtain a charging order over land or property through a civil court process by the Enforcement Judgement Office. Property charging orders do not apply in Scotland.
We do all we can to avoid forcing customers owing tax to sell their primary residence. We have only forced the sale of customers residences where the customer has either:
- more than one property
- been involved in criminal activity
We will not make you sell your main home to fund a loan charge or disguised remuneration tax bill.
We may also ask you to consider releasing equity from your property to either:
Better To File Now Even If You Cant Pay
Some people avoid filing taxes because they cant afford to pay the tax bill. However, you should always file on time, even if you cant pay all of the taxes due. If you wait, youll be faced with a late filing penalty which is just one more thing youll have to pay. The failure-to-file penalty is 5 percent per month based on the amount of tax you owe.
If you are unable to pay your tax bill quickly, the IRS has payment installment plans. Approval of an installment plan is automatic if you owe $25,000 or less, can prove you cannot pay the total amount you owe at the time its due, and are able to pay off the tax in three years or less. In addition, you or your spouse cant have had an installment agreement with the IRS in the past five years.
Also Check: Can I File My Taxes For Free
What If I Cant Pay My Taxes
Don’t panic you may qualify for a self-service, online payment plan that allows you to pay off an outstanding balance over time. Once your online application is complete, you’ll receive immediate notification of whether your payment plan has been approved without having to call or write to the IRS. Online payment plans are processed more quickly than requests submitted with electronically filed tax returns, even if the new tax is not yet assessed.
The Payment Deadline Is April 30 2022
If you have a balance owing, your payment is due on April 30, 2022. Some taxpayers may receive Notices of Redetermination from the CRA over the next two years that are related to Individual Emergency Benefits overpayments. If you receive such a notice, you should follow the payment directions provided in the letter.
If you or your spouse or common law-partner are self-employed, your payment is still due on April 30, 2022.
Since April 30, 2022, falls on a Saturday, in both of the above situations, your payment will be considered paid on time if we receive it, or it is processed at a Canadian financial institution, on or before May 2, 2022.
If you filed your 2020 return and qualified for interest relief, you have until April 30, 2022, to pay any outstanding income tax debt for the 2020 tax year to avoid future interest charges. This applies to the tax owing for the 2020 tax year only, and not for any previous tax year.
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Tax Return Extension Deadlines
Send what $$ you can with Your Extension
Include as much of a partial payment as possible with your personal tax return when you file your Extension. Complete a rough draft of your tax return if necessary, and even If you estimate a little high on what you might owe, it will simply come back to you as a refund when you DO file. Not a big deal if you hate paying interest to the IRS.
Even if you cant pay your taxes, file your Extension ! This will prevent the late filing penalty or Failure to File Penalty . Sofile your Extension, THEN start saving up your money and file your Tax Return on time pay what you canbut no matter what, file your 1040 even if you cant pay.
In fact, consider borrowing the funds from someone else to pay the IRS . However, typically paying a 3rd party reasonable interest for a loan to pay your taxes will be cheaper and certainly less financially stressful.
This is actually a very common situation when taxpayers are a little shorteven on May 17th this year. Believe me when I tell you that youre not alone. Millions of people will file an Extension on May 17th and still owe- its okits not the end of the world.
How much will I owe in interest and penalties between May 17th and October 15th?
Heres how the interest and penalties are calculated on what you owe between now and October 15th, AND continuing thereafter:
Business Extensions and Personal Extensions are treated differently
Putting Your Property For Sale For Back Taxes
If you are thinking about borrowing against your home, putting your property for sale for back taxes, or obtaining other credit to repay CRA, you should do so before CRA puts a lien on your home as part of their collections action.
However, know that there is a risk to these strategies as well. Any sales or loans should be negotiated through a tax professional who specializes in this area. If you go directly to your existing bank or lender you can damage your relationship with them. Many lenders, especially banks, frown upon back taxes and view them the same as having bad credit. You may not only be declined for the increased financing, but the lender may also cancel existing loan arrangements they have with you.
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Keep Paying The Taxes You Owe Even After You File And Talk To The Irs About A Payment Plan
Once Tax Day passes, youll have a month or two before the IRS contacts you about the rest of your taxes owed. During that time, keep throwing every available dollar at the balance with the goal of paying it off before they ever contact you.
If you cant pay off your tax bill by that time, you should apply on the IRS website for a payment plan. And good newsyou can set up the plan online without having to call the IRS and wait on hold for hours!
Jennifer M. found the IRS easy to work with when she set up a payment plan.
They were flexible and willing to work with our specific situation. Basically, they asked us what we could afford each month, and we went from there, she explained.
The IRS offers a short-term payment plan for bills that are less than $100,000.1 Long-term monthly plans are available for balances less than $50,000.2 Long-term plans require a set-up fee that ranges from $31 to $130, but the fee could be waived if you fall into the category of low income.3
Jennifer put her tax debt at the top of her debt snowball plan and was super motivated to get rid of it as fast as possible. And she did, in less than a year!
