Skylar Clarine is a fact-checker and personal finance expert with extensive experience including veterinary technology and film studios. Whatever the reason, if you fall behind on paying your taxes for reasons other than financial difficulties, it's important to reevaluate your tax payment plans. The price of negligence is too high; the IRS will pursue you and won't stop until you pay. Here is a more detailed list of reasons why otherwise conscientious people fall behind on their taxes.
One of the most common mistakes a taxpayer can make is not filing a tax return. However, if you live and earn income in the United States above a minimum threshold for a particular year, you must pay taxes and report that income by filing a federal tax return. By law, employers withhold taxes from your paycheck. What you may not know is that if not enough taxes are withheld from your paycheck during the year, you, the employee, are likely to owe the IRS when you file your tax return during tax season.
This is also known as underretention. It is usually triggered when an employee requests excessive exemptions on an IRS Form W-4 (completed at time of hiring). That means that not enough income taxes are withheld throughout the year. You can file a new W-4 form at any time.
And if you find that you've given too much to the government, they'll return the money when you file your income taxes. Another common form of late payment of taxes is linked to business owners and entrepreneurs. Most self-employed people are responsible for paying their own quarterly taxes, based on their income and estimated tax payments. Because they are self-employed, they don't have an employer withholding taxes from their wages, which is often an effective backup for people who would otherwise forget to file their taxes.
However, if you're self-employed and don't make your estimated tax payments throughout the year, you'll incur a significant tax liability at the end of the year. There are several ways to calculate your quarterly estimated tax payments. Just make sure that the method you choose doesn't make it difficult for you to cover everyday expenses or impose a huge tax bill and penalties for underpayments. The IRS often extends tax filing deadlines for victims of natural disasters.
You can check the IRS disaster relief announcements to determine your eligibility. It's not just self-employed Americans who are short on time, everyone is busy these days. Some other reasons why people may owe the IRS relate to what happens in their personal lives. A taxpayer may have a family crisis or an emergency that occurs around tax season that prevents them from filing a timely tax return or paying the tax bill in full.
In that situation, the IRS will issue the taxpayer a bill for the amount still due. Other taxpayers may simply misunderstand tax laws and request exemptions, deductions and credits that they are not qualified to apply for. In this situation, the IRS will normally contact the taxpayer and inform them of the error when reporting. Then, the taxpayer must validate the exemption, deduction, or credit obtained.
Without proof, the IRS will correct the taxpayer's tax return and the taxpayer could incur a significant tax liability plus a penalty and interest. An easy way to correct most reporting errors is to use tax software or hire an accountant. These resources will alert you to deductions relevant to your situation and reduce the number of errors. In any of the above circumstances, if the IRS believes that you owe overdue taxes, it will have no qualms about contacting you.
The IRS usually sends you a bill in the mail, but you may be contacted by phone. In serious cases, they may even try to visit you at work or at home. If the agency can't get you to voluntarily pay your tax debt, it can take steps to collect you. You have the authority to place a lien on your home and garnish your salary.
It will also add penalties and interest until your debt is paid. To avoid owing to the IRS, focus on motivating yourself and learn about your tax reporting and payment obligations. If you're ever unsure of your tax-filing and payment obligations, hire a professional tax attorney or tax preparer. Contacting the IRS directly for information is not a bad idea.
Above all, always be alert and always file your taxes on time, no matter what you owe. Larry Pon, owner of Pon & Associates, a San Francisco-based tax planning and financial advisory firm, points out that his best clients are planners and usually stay involved and aware of what's going on. That's good advice, but don't delay taking it. When you owe the IRS several thousand dollars, it can be stressful, but in most cases, you don't have to worry too much.
If your business owes more than that, you must provide detailed financial information in order for a payment plan to be approved. Once the State Department has revoked your passport, you can return to the United States if you're out of the country, but after that, you won't be able to travel abroad until you pay the taxes due. This is called a direct debit installment agreement and, with this level of taxes due, acceptance is automatic. That's when the IRS takes your assets and sells them to cover your due taxes.
It is one of the most serious collection actions used by the agency. If you can't pay your due taxes in 72 months, you must complete Form 433-A or 433-F (Collection Information Statement). The Internal Revenue Service (TIGTA) watchdog states that the IRS ignores hundreds of thousands of high-income delinquent taxpayers who owe billions of dollars in total. Those who don't pay their state income taxes contribute to California's tax gap, the difference between taxes due and taxes paid.
Regardless of how much you owe the IRS, if you can't pay, there are other options. The report, entitled “Arguments for a strong attachment to the fiscal gap”, comes as the Biden administration proposes to pay for its ambitious infrastructure and recovery plans, in part by strengthening funding for the Internal Revenue Service in order to close the fiscal gap between taxes due and money paid. If the amount of your taxes due falls within this range, you should set up automatic payments when applying for a payment plan. .