Missing a tax filing deadline or failing to pay your tax bill in full can have serious consequences. The IRS recommends filing past-due tax returns as soon as possible to limit penalties and interest on the amount you owe.

Key Takeaways

  • Taxpayers who owe back taxes should file a past due return as soon as possible.
  • The IRS charges interest and penalties on back taxes and may take severe collections 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 2020 taxes, the date was moved to May 17, 2021). 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.

How to File a Back Taxes

If you owe back taxes, you must file a past-due return with the IRS. The process is similar to filing an on-time tax return, but 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 W2s 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 you’re not sure if you do, you can request a tax return transcript from the IRS. You can choose to receive your transcript electronically or by mail. Transcripts are generally only available for the current tax year and for each of the last three tax years, but taxpayers may request a transcript from an older tax year by submitting Form 4506-T.

Tax forms are updated often due to legislation changes. When filing back taxes, make sure you are using the original tax forms and instructions for the year you are filing. The IRS provides a database of prior year forms on their website.

If you need help completing your past-due return, you can use tax preparation software or hire a professional.

However, unlike a regular tax-return, you cannot e-file a past-due return. You must send your late return and your payment to the mailing address listed on your 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. There is also an additional late-filing penalty for returns that are filed more than 60 days after their due date. If your return was due on or after Jan. 1, 2020, 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 file penalty is also 25%, however interest will continue to accrue until your tax liability is paid in full.

There is also a penalty for underpaying estimated taxes, which are typically due April 15, June 15, September 15 and January 15. (The 2021 first estimated tax deadline is April 15, 2021, despite the later deadline for filing 2020 income taxes.)

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 loan.
  • 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 you qualify for.
  • 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.

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

Important

The Taxpayer Relief Initiative introduced revised collection procedures to help taxpayers who owe back taxes and were experiencing financial hardship due to the COVID-19 pandemic.

In some cases, you may need professional help preparing an offer in compromise or other solution 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, ideally before you receive notice from the IRS, to limit penalty charges and accruing interest.  The IRS has a director of approved federal tax preparers that includes attorneys. It also offers Low Income Taxpayer Clinics to help in this situation.