Nothing can be said to be certain, except death and taxes. That old adage is attributed to Benjamin Franklin, who said it in a letter when he wrote about the ratification of the Constitution to French scientist Jean-Baptiste Le Roy in 1789. And he wasn't lying.
Anyone who meets a certain income threshold must file an annual tax return. That minimum ranges from $5 to $27,300 based on your age and filing status. Even those who fall under these minimums may still need to file, especially if they want to get a tax refund.
But missing a tax filing deadline or failing to pay your tax bill in full can have serious consequences. The Internal Revenue Service (IRS) recommends filing past-due tax returns as soon as possible to limit penalties and interest on the amount you owe.
- Missing a tax filing deadline or failing to pay your taxes can have serious consequences.
- Taxpayers who owe back taxes should file a past-due return as soon as possible.
- You can request copies of your tax transcripts to help you prepare your outstanding returns.
- The IRS charges interest and penalties on back taxes and may take severe collection actions against taxpayers who fail to pay.
- Taxpayers who cannot afford to pay back taxes may request a payment plan or apply for an offer in compromise with the IRS.
What Are Back Taxes?
Back taxes refer to an outstanding federal or state tax liability from a prior year. Federal income tax returns are typically due each year on April 15 for the prior year. You may request an extension to file your taxes, which gives you another six months to file your return; however, even if your extension is approved, you must still pay your tax bill by the required due date. This is generally on April 15 for most individual tax filers.
How to File Back Taxes
If you owe back taxes, you must file a past-due return with the IRS. Although the process is similar to filing an on-time tax return, there are a few things to keep in mind.
To start, you’ll need to locate your tax forms and other financial documents. A past-due tax return requires the same information as a regular tax return. Make sure you have any W-2s and 1099s you received during the year in which your back taxes were due. You’ll also want to gather any receipts necessary for claiming income tax deductions or credits.
If you don’t have all of your documents or aren’t sure if you do, you can request a tax return transcript from the IRS. You may elect to receive your transcript electronically or by mail. Transcripts are generally only available for the current tax year and each of the last three tax years, but taxpayers may request a transcript from an older tax year by submitting Form 4506-T.
If you need help completing your past-due return, you can use tax preparation software or hire a professional.
Tax forms are often updated due to legislation changes. When filing back taxes, make sure you use the original tax forms and instructions for the year you file. The IRS provides a database of prior-year forms on its website.
Unlike a regular tax return, you cannot e-file a past-due return. You must send your late return along with your payment to the mailing address listed on Form 1040, or on a late notice from the IRS if you received one. Be sure to include any taxes owed from prior tax years with your payment. Your unpaid balance will continue to accrue interest until it is paid in full.
What Happens If I Don’t File Back Taxes?
If you have back taxes, it’s important to file a past-due tax return as soon as possible. If you don’t file or pay your taxes in full by the deadline, the IRS will begin to charge penalties on the amount you owe. Types of penalties include:
- Failure-to-File Penalty: If you miss your filing deadline and have not filed an extension, the IRS imposes a penalty of 5% of the amount of your unpaid taxes. The IRS will continue to charge an additional 5% every month for up to five months up to a maximum of 25%. There is also an additional late-filing penalty for returns that are filed more than 60 days after their due date. Your penalty is equal to the full amount of your overdue tax bill, or $435, whichever is less.
- Failure-to-Pay Penalty: If you don’t pay your taxes by the deadline, the IRS will charge a 0.5% penalty for each month that your payment is late. The maximum failure-to-pay penalty is 25%. Keep in mind, though, that interest will accrue until your tax liability is paid in full.
There is also a penalty for underpaying estimated taxes, which are typically due on April 15, June 15, Sept. 15, and Jan. 15. For the first quarter of 2023, the penalty for underpayments is 7%.
In addition to interest and penalties, other inconveniences can result from not filing and paying your taxes. For example:
- The IRS will not issue refunds to taxpayers who are past due.
- You may have trouble getting a mortgage, federal financial aid, or other loans.
- You will not receive credits toward Social Security benefits for self-employment income.
- The IRS may file a substitute return for you, which may not include all of the credits and deductions for which you qualify.
- The IRS may begin collections, which could include a levy on your bank account or paycheck or a federal tax lien on your property.
- You may be subject to additional enforcement penalties or criminal charges.
The IRS generally has 10 years to collect back taxes, after which the amount is usually wiped clean from a taxpayer's history and the IRS writes it off.
What If I Can’t Afford to Pay Back Taxes?
The IRS offers several options to assist taxpayers who cannot pay their tax liability; however, if you owe back taxes, it’s up to you to contact the IRS for assistance. If you do nothing, the IRS will continue to charge interest on your unpaid taxes.
Some options for individuals who can’t afford tax payments include:
- Request to delay collections
- Propose an offer in compromise
- Apply for reasonable-cause assistance
- Apply for penalty abatement relief
- Request an installment agreement
In some cases, you may need professional help preparing an offer in compromise or other solutions for your unpaid tax liability. Try to avoid tax settlement firms that claim to offer an easy solution to reduce your debt. These companies often charge high fees and make promises that are nearly impossible to keep.
Taxpayers in this situation should contact a qualified tax attorney who can evaluate their situation and provide a recommendation. The key is to get help as soon as possible to limit penalty charges and accruing interest. Ideally, this is before you receive notice from the IRS. The IRS has a directory of approved federal tax preparers that includes attorneys. It also offers Low-Income Taxpayer Clinics to help in this situation.
What Happens If You Have Back Taxes?
If you have back taxes, the IRS will aim to collect them. In addition to being charged penalties and fees, the IRS may seize your assets, such as homes, cars, wages, bank accounts, and Social Security benefits.
Are Back Taxes Ever Forgiven?
Back taxes are not forgiven per se. The IRS has 10 years to collect unpaid tax debt after which it writes it off and the amount is removed from a taxpayer's history.
What If I Owe the IRS and Can't Pay?
If you owe money to the IRS and can't pay, it is best to contact the IRS to work out a payment plan rather than ignoring the situation. You may be able to work out a payment plan with the IRS.
The Bottom Line
Back taxes are taxes owed from a prior year. If you owe back taxes, you'll have to file a past-due return with the IRS. If you do not pay your back taxes, you will consistently incur penalties and fees on the outstanding amount. In addition, there are other adverse consequences, such as the inability to obtain a mortgage, collections being brought against you, and criminal charges. If you do owe back taxes, contact the IRS and determine a plan to pay your outstanding amount.