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IRS Back Taxes

Updated on May 13, 2011

IRS Back Taxes

Do you owe the IRS back taxes and need direction to what you should do? Do you need information on the types of tax penalties that the Internal Revenue Service imposes? Not taking care of those IRS back taxes can lead to serious ramifications if you fail to take care of the matter as quickly as possible. The deadline each year is April 15 and not meeting the deadline without an extension can become costly. You will assessed three types of penalties – Failure to File, Failure to Pay and Interest on the amount that you owe. Each penalty is assessed differently; therefore, calculating the full amount owed can be difficult. Here is an explanation on each type of penalty, and what you should do to take care of your IRS back taxes that are due.

TIP: Did you know that the interest penalty for IRS back taxes has been as high as 9 percent in the past 10 years and as low as 4 percent in 2010? Check out TaxAlmanac.org after reading this article to determine the current quarterly tax penalty for your situation, as rates can change every three months.

IRS Back Tax Penalties Assessed

There are three different types of penalties that the IRS assesses. The first type of “fine” that is assessed is the Failure to File Penalty. The amount that is owed for the Failure to File Penalty is figured from the time of the tax deadline of an individual’s tax return to the date that he or she essentially filed the return. This also takes into consideration any tax extensions that were given. For every month that they person is late on filing his or her return, a five percent penalty is added to the full amount due. The total maximum Failure to File Penalty is twenty-five percent. To calculate using a simple formula, take the total of months that are late and multiply by the maximum penalty if you are over five months late to figure out what your Failure to File Penalty will be.

The second type of tax penalty that the Internal Revenue Services assesses is known as the Failure to Pay Penalty. The IRS figures out this type of penalty by taking the back tax amount that is owed and multiplying it each month by half of a percentage, 0.05%. This amount is assessed for every month that an individual does not pay the entire balance. It will remain under the Failure to Pay Penalty until the amount is paid in full. For every month from the tax deadline that an individual does not pay his or her IRS back taxes, this penalty is calculated.

The third type of penalty on IRS back taxes is referred to as the Interest Penalty. Much like taking out a loan, the Internal Revenue Service assesses interest daily for back taxes that are due. Interest accumulates daily on the amount due and is the percentage rate changes every three months. Interest rates generally stay around four percent for IRS back taxes.

If you have not filed an income tax return, the Internal Revenue Service will issue a substitute return to assess penalties. You can still file your own tax return; in fact, the IRS recommends that you do so, this way you can take advantage of the credits and deductions that you are allowed to have. If the Internal Revenue Service has already filed a substitute income tax return and you file one yourself, they will simply fix the calculations to adjust the true balance owed.

IRS back taxes means that individuals will eventually have wages garnished to pay the amount that is due if they ignore notices that the Internal Revenue Service issues.
IRS back taxes means that individuals will eventually have wages garnished to pay the amount that is due if they ignore notices that the Internal Revenue Service issues. | Source

IRS Levy and Garnishments

Not paying your IRS back taxes can lead to the seizure of property. An IRS levy can also garnish wages from your employer and if need be, your bank account scan be levied. IRS levies are generally a last step for those who ignore the notices sent in the mail for back taxes that are owed. If an individual is behind on taxes, the Internal Revenue Service sends out different types of notices – Initial Notice, Demand for Payment, Final Notice. The Final Notice is the last “friendly reminder” to pay back taxes. The Final Notice will give individuals a choice to have a hearing, if requested. If the notice for IRS back taxes is ignored, the agency will then notify the individual’s employer to withhold money from his or her paycheck each pay.

Paying IRS Back Taxes in Installment Payments: How It Works

How to Take Care of Your IRS Back Taxes

If you owe the IRS back taxes, the agency recommends that you contact them as soon as possible to resolve the matter. The telephone number for the IRS is 1-800-829-1040. If you cannot afford to pay the amount that you owe in IRS back taxes, the agency may work out a payment plan that you can afford to settle the amount that you owe. However, penalties and interest may be assessed to their calculations.

References for the Creation of this Hub:

IRS.gov: “Haven't Filed an Income Tax Return? Here's What to Do”

IRS.gov: “What Will Happen If You Don't File Your Past Due Return or Contact the IRS”

IRS.gov: “Failure to File Penalty”

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