You’re probably thinking, “There’s no chance I can pay my taxes right now. Should I still file?” Well, the short answer is yes! Filing your taxes on the dot is one of the best things you can do to protect yourself from additional penalties and fees.
In this guide, we’ll walk you through a few reasons why filing your taxes as soon as possible is essential, even if you don’t have enough money to pay them off yet.
What Happens if I Don’t File My Taxes at All?
If you don’t file your taxes, the IRS will eventually notice. If you’re lucky, they won’t notice until after April 15, so you can count on paying a late filing penalty. But if they find out before then, they will also assess a failure to file a penalty.
Failure to pay penalties is also applied to people who owe tax debt but didn’t file taxes in time (or at all). The IRS is allowed by law to charge interest on unpaid tax debts from the moment that amount becomes due, so if you think about it like an interest-bearing bank account for two or three years, imagine how this could add up quickly! Interest on tax debt accumulates daily—this means that every day that passes without payment leads directly to higher interest charges being assessed against unpaid taxes owed by individuals and businesses.
Here is a table presenting the difference between not filing at all and filing but being unable to pay:
| Failure to File | Failure to Pay |
|---|---|
| A penalty of 5% of the unpaid amount you should have stated. | A penalty of 0.5% of the amount that is not paid by April 15. Charged each month or part of a month where your return is late, up to 5 months. |
| Recurring monthly or quarterly charge on any unpaid balance until the whole amount is paid in full or a 25% penalty is incurred. | Subject to a minimum late filing penalty amount of $210 if your return is filed late by more than 60 days. |
| Penalties still apply even if you submitted a tax extension by April 15. Any of the aforementioned fines cannot be avoided by filing for a tax extension. | If you also owe a failure to file penalty, the failure to pay penalty is deducted from the penalty for not filing. |
Do I Have to Pay Penalties on My Back Taxes?
Penalties may be waived if you can show you had a good reason for not filing or that your failure to file was due to your reasonable cause.
Penalties are not always required, but you may still have to pay interest. It is possible that penalties would not be assessed against you even if they were due—but this does not imply that there won’t be consequences regarding back taxes. If the IRS finds out about a tax debt, they will charge interest on the amount owed until it is paid in full; depending on how long the debt was incurred (and other factors), this could get pretty high!
Even if you submitted an extension, taxes, and penalties start to take effect on April 15.
How Interest is Calculated on Tax Bill
You will also have to deal with interest costs and the basic charges the IRS would impose. The IRS assesses interest on any outstanding debt until it is paid in full. Consequently, you must pay interest on:
- Your initial tax debt, as stated on your tax return
- All of the sanctions mentioned above
- The accumulated interest on your back taxes
Tax credit accrues interest every day! This means that if you ignore a minor tax issue, it could quickly grow into a significant problem.
What You Can Do if You Can’t Pay Off When You File
You may have heard of a few of these and wondered if they’re right for you. Here’s a quick rundown of the standard tax debt relief programs prepared by the IRS:
Offer in Compromise (OIC)
Offer in Compromise (OIC) is a way to settle your tax claim. It’s an alternative to paying the total amount you owe in taxes and penalties, which can be challenging if you don’t have the money.
- To qualify for an OIC, you must meet specific criteria:⦁ You must be current on all other taxes and not be under an IRS payment plan.
- You must have an acceptable ability to pay the proposed offer amount. This includes your assets, income, and expenses.
- You cannot be in bankruptcy or litigation with the IRS.
Installment Agreement (IA)
An installment agreement is a payment schedule you can set up with the IRS to pay your tax liability over time. You can qualify for an installment agreement if you owe $50,000 or less in combined tax, penalties, and interest. If you owe more, you’ll need to complete an entire payment plan instead of an installment agreement.
Penalty Abatement
Penalty abatement is a program that allows you to reduce or eliminate your tax penalties. If you qualify, the IRS will grant you penalty abatement and let you pay back taxes at a lower rate, often with no interest.
This program is designed for people who could not file their taxes on time due to circumstances beyond their control—for example, if they had a medical emergency or were in jail during tax season. Qualifying events include:
- Natural disasters.
- Death in the family.
- Military deployment.
- Severe illness or injury.
- Other situations that prevent people from filing on time.
Currently Not Collectible Status
If you have an unpaid revenue claim certified as currently not collectible by the IRS, you may qualify for the Currently Not Collectible (CNC) status. This means you will not have to pay any interest or penalties on your outstanding debts. You will also be able to stop receiving collection notices from the IRS, and they will not take action against you to recover their money.
Don’t Wait to Get Professional Tax Debt Relief!
Don’t wait to get professional tax debt relief. If you are distressed by an overwhelming amount of unpaid taxes, you should seek help now.
It could be on the eleventh hour if you wait until the IRS comes after you. The IRS has a number of strategies they can use against taxpayers in default—including wage garnishments and property liens—and once this occurs, it can take years to resolve the issue.
If you wait until your credit is ruined by unpaid tax debt, it will be harder to find financing for your next home or car purchase and may even prevent you from getting a job (or keeping the one that pays). The best time to work out a solution is before things get worse!
You Can Negotiate with The IRS Through Tax Debt Relief Agencies
Yes, you can negotiate with the IRS to settle your outstanding tax balance.
Tax debt relief agencies can negotiate with the IRS on your behalf. They will work to ensure that your tax bill is satisfied and that you are not subjected to undue penalties or interest.
You might be able to pay your tax liability over time or in installments. You may also have the option of paying your outstanding balance in one lump sum. However, even if you’re not eligible for any of these options and aren’t able to negotiate with the IRS on this matter, you still need to file a return because it could lower the amount of interest that accrues on top of your unpaid balance due to penalties and interest charges (for example, late payment fees). All these complicated processes can be prepared and discussed with your trusted tax professionals in no time!
Whether you can afford to pay your taxes, the best thing to do is still file your taxes. If you don’t file, some penalties will apply. However, options may be available for you if you are facing a financial hardship such as unemployment or illness and aren’t sure how to pay your taxes. You can learn more about your tax debt settlement options by contacting us, 833IRSHelp, your client-centered tax professionals who know what kind of help is available for taxpayers facing certain circumstances.
