Having delinquent taxes can be frightening, but when you know the basics, you can make a sound plan.
In this article:
- What Are IRS Delinquent Taxes?
- Why Do You Need to Pay Delinquent Taxes?
- How Can You Settle Delinquent Taxes in Full If You Don’t Have the Money?
- What Are the Different Payment Methods?
- What Will Happen If You Don’t Respond to Payment Arrangements?
- What Happens to a Property When You Have Delinquent Real Estate Taxes and Tax Liens?
- How Do You Avoid Having Delinquent Taxes?
- When Do You Make an Appeal?
- How Can a Taxpayer Pay Delinquent Property Taxes and Delinquent Federal Taxes?
Delinquent Taxes | How to Deal with Them on Your Own
What Are IRS Delinquent Taxes?
Having delinquent taxes is an issue that’s not hard to resolve. Just because you failed to pay or file those tax returns on time does not mean it is the end of the world.
If you know how to fix them, then it can make your financial situation a lot better. There are various ways to solve this issue, but for now, let’s tackle the basics!
Any unpaid taxes after the set deadline become delinquent taxes. These can be federal, state, or property taxes.
You have to take them seriously due to the penalties and fees. The IRS can be a real nightmare for people who don’t pay taxes or who don’t file an income tax return on time.
A delinquent taxpayer can receive a tax levy, whether from the IRS for federal taxes or the state for local and property taxes.
However, the IRS has a faster tax levy process compared to local counties and states. Therefore, it may be in the best interest of taxpayers to pay federal taxes first.
The IRS can compel and collect tax debt very efficiently. Other than tax levies, the IRS can attach a lien on real estate property, garnish wages, and apply any refunds to your tax debt first.
Why Do You Need to Pay Delinquent Taxes?
Besides the law expecting you to settle unpaid taxes, penalties and interest grow until you pay off the entire balance. You are also committing a crime if you don’t file a tax return or pay the right sum each tax year.
Specifically, filing delinquent taxes leads to a failure to file and failure to pay penalty. Both penalties add 5% and .5% of the unpaid taxes each month, up to 50% total taxes.
If you want to claim a tax refund, file a return and settle your delinquent taxes. Otherwise, a refund will just be wishful thinking.
How Can You Settle Delinquent Taxes in Full If You Don’t Have the Money?
The IRS won’t put you in a grave financial situation if you can’t settle delinquent taxes. They give you different solutions to help you fix the problem.
You may also contact a tax professional, who can assist you in choosing the best option.
One of these is an installment payment agreement if you can’t pay your delinquent taxes in full. This allows taxpayers to pay a small amount every month.
There are several installment agreements. They depend on the tax due and your current financial situation.
Take note, though, that agreeing to a payment plan still means you have interest and penalties to pay.
The IRS can accept an offer in compromise. This can resolve your debt for pennies on the dollar.
However, this only works if you can confirm you have no means to pay your delinquent taxes.
This setup may sound like a good deal, but there are only a few taxpayers who receive it. The Department of Revenue is strict when it comes to accepting this type of offer.
If you are in truly dire straits, you can ask the IRS to give you some reprieve and delay the collection of your owed taxes.
What Are the Different Payment Methods?
The IRS makes sure it’s easy for you to settle the taxes you owe. Once you’re ready to pay, you can use the following:
- Direct or automated debit arrangement
- Payroll deduction
- Credit card
- Cashier’s check
- Money order
- Cash payment in retail partner shops
- EFTPS (Electronic Federal Tax Payment System)
You can also use these options even if you’re paying your taxes on an installment basis. There are terms and conditions to consider, though.
For example, if you choose a credit card or a debit card payment, you need to ask permission from your bank. This bank must authorize every transaction.
A payroll deduction is another effective way to settle your unpaid taxes, but you also need consent from your employer. For this arrangement, you have to file Form 2159.
If you’re already using an installment arrangement, the IRS can convert it to a payroll deduction as well.
What Will Happen If You Don’t Respond to Payment Arrangements?
The IRS will send an assessment and a tax warrant. It will include all unpaid taxes, penalties, and interest payments.
If you don’t pay the amount within ten days after the issue date, it will end up in the county superior court.
The tax warrant authorizes a lien against the taxpayer’s personal or real estate properties. It also allows the IRS to seize assets to pay the debt.
These can include bank accounts, personal properties, and wages.
What Happens to a Property When You Have Delinquent Real Estate Taxes and Tax Liens?
Most real estate taxes relate more to state and local laws.
Each jurisdiction has its own property tax rate. Also, each county has its own allowed months or years of delinquency before property tax collection takes place.
Non-payment of state taxes leads to penalties on top of the original tax debt. Some states allow at most a year of delinquency before the local government proceeds with a lien.
For taxpayers who are also delinquent with property taxes, knowing the tax lien withdrawal and release process can help.
Take note: Generally speaking, property tax liens receive priority over mortgage liens and even tax deed liens.
In this manner, sometimes state property liens for local property taxes may have precedence over delinquent IRS taxes. That can mean more assets used as either collateral or payment for the IRS delinquent taxes since federal taxes are not easily extinguished.
Having unpaid property taxes can mean losing one of your prized possessions: your home. When you don’t pay your taxes, the government will attach a lien to the property.
If you don’t settle at all, the IRS may decide to begin a tax lien foreclosure process. In a public auction, it offers the tax lien certificate to the highest bidder.
Delinquent taxpayers cannot join this activity. It’s also possible for the government to initiate a sale of the property through a judicial process.
The exact rules on how to treat delinquent real estate taxes can vary. Some of them may allow a redemption period, which prevents a public auction.
In turn, the owner can keep his house.
How Do You Avoid Having Delinquent Taxes?
You can take many steps to avoid having delinquent taxes. Follow these simple reminders below:
- Know your tax responsibilities.
- File your tax return electronically to lessen errors. This also enables you to make a payment without wasting time and money.
- Know the due date of your tax return.
- If you receive a Delinquency Notice or any kind of Notice of Balance Due, respond to it promptly and accordingly.
- Check out the Department of Revenue websites to get more information about instructions, changes in laws or tax rates, payment and filing deadlines, or other info about your tax responsibilities.
- Notify the IRS if you change your address or phone number.
When Do You Make an Appeal?
You have the right to appeal if you believe you don’t owe any tax or penalty and if the agency denies you a tax refund.
You can also file an appeal if the Taxpayer Information and Education sends you an unfavorable ruling.
How Can a Taxpayer Pay Delinquent Property Taxes and Delinquent Federal Taxes?
Taxpayers can pay both delinquent IRS taxes and property taxes through the traditional mailing system or the electronic method.
For the local government, states and counties, taxpayers can send the tax payments to the local registrars, government halls, and other branches. Other banks offer direct deposit but with a small fee.
On the other hand, the IRS has similar payment options available. Payment via check or electronically still applies.
Important: Taxpayers can have use a money order or check made payable to the U.S. Treasury. Just writing down “IRS” can make checks susceptible to fraud, where someone can easily change the IRS to another name.
For those who are under a payment plan for delinquent taxes, the IRS offers:
- Cash payment through one of the many IRS partners. Taxpayers can search or call their local IRS branch office for more specific information.
- Through a check or money order,
- Using a credit card, either through the IRS phone system of the website,
- Direct deposit from a bank account of the taxpayer,
- Automatic deductions from a salary. The employer may need to know the arrangements first, so better to advise the employers beforehand, or
- Using the Electronic Federal Tax Payment System.
It bears repeating that delinquent federal taxes have high penalties and even higher fees compared to the usual bank loan. A payment plan also increases the financial burden of a taxpayer as there are surcharges as well.
Paying delinquent taxes should occupy a high priority on any financial checklist. Fees are not the only negative repercussions of late taxes: the court can revoke a passport or the IRS can apply other tax collection methods that are more cumbersome compared to normal methods.
Don’t forget to download, save, or share this handy infographic for reference:
For more visual, here’s a video on how to file late taxes:
Talking to a tax professional is one of the best things you can do if you have delinquent taxes. They can analyze your financial situation and provide you with the best solution and advice on managing your finances in the future.
Following their expert guidance is an invaluable tool to get you out of the tax dilemma you’re in.
Delinquent taxes, whether federal or state, can negatively affect the finances of any individual. As long as the taxpayer gives priority to the payment of taxes, the risk of receiving penalties, liens, and levies diminishes.
Do you have other questions about delinquent taxes? Do you know someone who went through the IRS process with unpaid taxes? Let us discuss in the comments section below.
If you owe back taxes, visit taxreliefcenter.org for more information on tax relief options.
- What To Do When You Can’t Make This Month’s IRS Installment Payment
- Should You Consider Filing For Bankruptcy?
- 12 Reasons To Speak To A Tax Relief Specialist About Your Back Taxes ASAP
Editor’s Note: This article was originally published on January 30, 2018, and has been updated for quality and relevancy.