Failure to pay your taxes can have serious implications. If you don’t pay or get your account marked as uncollectible, the IRS can seize your wages, home, car, and other possessions. The agency will also add penalties and interest to your account, and if you owe over the “seriously delinquent threshold,” the IRS will tell the State Department to take away your passport.
The exact consequences vary depending on how much you owe, as do the options for dealing with your tax debt. Do you owe between 50k and 100k in taxes? Call (404) 233-9800 or schedule a consultation with our experienced tax attorneys today.
In the meantime, read on to learn more about owing a large tax liability and your options for relief.
Scenario One: I Owe the IRS $50,000
If you owe any amount of tax, you will incur penalties and interest on your account. The longer you wait to pay, the bigger your balance will get. Additionally, if you owe the IRS at least $10,000 in late taxes, the IRS can issue a federal tax lien. These are legal claims on your home, car, and other assets, implying that the IRS may seize them in order to settle your debts.
The agency is not required to tell you until after the lien is filed. In most cases, the procedure occurs automatically. Fortunately, even if a lien has been filed, it is not too late to act. The IRS provides options for both lowering your tax burden and spreading out your repayment over time. Here’s everything you need to know if you owe up to $50,000 in back taxes.
What Can the IRS Do When I Owe $50,000?
If you don’t pay your taxes, the IRS charges late penalties (and, if necessary, failure-to-file penalties), while interest also accrues on the balance.
Penalties and interest are typically assessed starting on the day the tax is due. The failure-to-pay penalty is 0.5% of the tax payable every month and climbs to 1% per month if you receive a Notice of Intent to Levy. This penalty can amount to up to 25% of the outstanding debt.
For example, if you owe $50,000, the penalty will be $250 or $500 every month and can accrue up to $12,500 in total additional penalties.
Interest will be charged on both the tax liability and the penalties, and it will compound. This means that interest will be added on top of interest. Even if you file an extension, the underpayment interest will still apply. The IRS interest rate is the Federal short-term rate plus 3%, and it adjusts quarterly.
What Can I Do If I Owe $50,000?
You may be eligible for a payment plan. With a short-term plan, you must pay off the bill within 180 days. Long-term installment plans let you stretch out your payments over 72 months (six years). If you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns, you can request an installment arrangement through the IRS Online Payment Agreement application.
Depending on your personal finances, you may qualify to pay a reduced balance through the partial payment installment agreement. Basically, you make monthly payments until the IRS collection statute expires, and then, the IRS writes off the remaining amount. In other cases, you may be eligible for a payment plan that gives you longer than six years as long as you pay off the full balance by the collection expiration date. If you’re unsure of the best payment plan option, contact a tax attorney to help you.
How to Reduce Your 50K Tax Debt
In addition to payment plans, there are several ways that you could reduce your IRS bill. This includes:
- Penalty relief: If this is your first tax penalty, or if you meet other criteria authorized by tax law, you may be eligible for administrative waiver relief. Under certain conditions, an administrative waiver grants exemption from specific penalties. The most prevalent administrative waiver for individuals and businesses is the First Time Abatement. Even if you haven’t fully paid the tax on your return, you can request a First Time Abatement for a penalty. However, the failure-to-pay penalty will continue to accrue until the tax is fully paid.
- Disputing your tax liability: In some cases, you can dispute your tax liability. For example, if your bill is from an audit and you disagree with the results, you may be able to appeal the audit. Suppose the tax liability is due exclusively to actions your spouse took without your knowledge. In that case, you may be able to get your name removed from the liability with Innocent Spouse Relief. There are also offers in compromise based on doubt of liability. If you don’t think you owe the tax, contact a tax attorney immediately. It’s doable but difficult to dispute a tax liability, and working with a tax professional can ensure you take the best approach.
- Bankruptcy: Filing for bankruptcy may help you with tax debt, but you should consult with a bankruptcy professional first. Generally, you can discharge taxes in bankruptcy only if they were personal income taxes assessed at least three years ago, although this can vary. When you file for bankruptcy, the courts order a stay that temporarily prevents all creditors (including the IRS) from conducting collection activities against you for a period of time.
Scenario Two: I Owe the IRS $51,000 to $100,000
Owing over $50,000 in taxes can be daunting. If you fail to take action, the IRS can issue liens, penalties, and added interest. However, options still exist to lower your tax bill and spread payments out over time. Here is everything you need to know if you owe $50,000 to $100,000 in taxes.
What Can the IRS Do When I Owe $51,000 to $100,000?
If you owe more than $50,000, you may face all of the previously mentioned consequences, including penalties for late payment, increased interest, and tax liens on your home. The IRS may also begin to cash in on those liens. This might include seizing your property or cars to pay off your debts and garnishing your wages.
If the IRS levies your salary, a portion of each pay period will be sent to the IRS until you make other arrangements to pay your outstanding taxes or the amount owed is paid in full. A portion of your wages may be excluded from the levy, and the difference will be paid to you.
With the levy, the IRS distributes Publication 1494, which explains to your employer how to calculate the amount exempt from the levy. Your employer will give you three days to complete and return a Statement of Dependents and Filing Status. If you fail to return the statement within three days, your exempt amount is calculated as if you were married and filing separately with no dependents. If you have multiple sources of income, the IRS may apportion the exemptions to just one of your income sources and seize 100% of the money coming in from your other jobs.
Loss of Passport
In other circumstances, the IRS may also take action against your passport. Under the Fixing America’s Service Transportation (FAST) Act 2015, the IRS is required to notify the State Department of taxpayers verified as owing a seriously delinquent tax debt.
As of 2023, seriously delinquent tax debt is defined as an unpaid, legally enforceable federal tax bill of an individual of more than $59,000 (including penalties and interest) for whom a Notice of Federal Tax Lien has been filed or a levy has been issued.
If you are individually liable for tax debt (including penalties and interest) totaling more than $59,000 (note this number increases annually) and do not pay the amount owed, or make alternate payment arrangements, the IRS may inform the State Department that your tax liability is seriously delinquent. As a result, after being notified of your substantially outstanding tax bill, the State Department will normally refuse to issue or renew your passport and may revoke it.
What Can I Do if I Owe $51,000 to $100,000?
You’ll have the same options as above with a higher tax debt, but the process will differ. If you owe over $50,000, you may still be eligible for an installment agreement, but you cannot apply online.
Instead, you must submit Form 9465 (Installment Agreement Request) and potentially Form 433-F (Collection Information Statement). The first form is the normal installment agreement application, and the second form requires comprehensive information about your finances.
Traditionally, the IRS required a Collection Information Statement from anyone who owed over $50,000 and wanted to set up payments, but now, you only need to submit a financial statement if a revenue officer asks for one or if you owe over $250,000.
Steps From Billing to Collection
Here’s a breakdown of the collection steps following the submission of your tax return without a payment:
- The IRS will send you a bill if you owe taxes. This will be the first tax bill. The IRS calculates how much tax you owe, plus any interest and penalties, based on your return.
- If you fail to pay your initial bill, the IRS will send you at least one more bill. However, remember that interest and penalties will continue to accrue until you have paid the full amount owed.
- If you fail to pay after receiving your final bill, the IRS can initiate collection actions. Collection actions may range from applying any future tax refunds you may receive to your current tax debt to seizing your home and assets.
What if I Can’t Afford to Pay?
If you are unable to make the full payments permitted by a short-term or long-term installment agreement, a Partial Payment Installment arrangement (PPIA) or an Offer in Compromise (OIC) is your best option. PPIAs allow you to make lower monthly payments. However, if your financial situation changes, the IRS may request higher payments in the future. Every two years or so, the IRS looks at your finances to ensure you still qualify for this program.
With OICs, you make an offer for less than you owe to the IRS based on your assets, income, costs, and overall ability to pay. If the agency agrees, you can spread the payment over a maximum of 24 months.
Finally, if you are experiencing financial difficulties, you can apply for Currently Not Collectible (CNC) status. Qualifying for CNC status effectively halts any IRS collections, including any liens, levies, or wage garnishments that may be associated with it. To be eligible, you have to show that you are unable to repay your obligations while covering your basic living expenses.
How Do I Avoid a Large Tax Bill?
One strategy to prevent owing a debt is to determine and modify the amount of tax deducted from your wages accurately. Review your withholding at the start of each year or if your circumstances change. If you’re self-employed, try setting aside a portion of every payment to cover your tax bill so you don’t get behind.
What Should I Do if I Owe $100k or more?
Consider an OIC or PPIA to settle tax debt if you owe the IRS more than $100,000 in past taxes and can’t afford to pay. You can also request penalty relief. Because penalties are calculated depending on the amount owed, they will be considerable if you owe more than $100,000. Getting relief can save you anywhere from a few hundred to $50,000 on this level of tax debt.
What is the IRS Collection Statute of Limitations?
The collection statute of limitations is the 10-year term in which the IRS has to collect any taxes owed to you. However, numerous factors can cause the collection statute to be extended, giving the IRS more time to collect what you owe.
For example, if you declare bankruptcy, request an offer in compromise (OIC), or have a pending payment agreement, the collection statute is extended because the IRS cannot collect your bill during these times.
Get Help With Your Tax Bill
When you owe between $50,000 and $100,000 in taxes, the IRS will take your outstanding debt very seriously. The IRS can utilize a variety of aggressive collection techniques to recover past taxes, and if you do nothing, you may face liens, levies, asset seizures, and other severe consequences.
Thankfully, there are several ways to reduce your tax bill or spread payments out over time, including payment installment agreements and penalty relief.
If you are concerned about unfiled returns, past owed taxes, or a high tax bill, call us today at (404) 233-9800 or schedule a consultation to find out how our team at Wiggam Law can help put this tax stress behind you.