Delinquent taxes are unpaid taxes when the deadline to pay them has passed. Delinquent taxes are similar to other types of monetary debts in that if they’re not paid by their due date, additional penalties and/or interest may accrue. These amounts will continue to grow the longer the unpaid bill (or delinquent taxes) goes unpaid.
Delinquent taxes can even lead to bigger problems, such as tax liens and tax levies (including wage garnishment or a bank account seizure). The goal of this article is to take a deep dive into delinquent taxes, including how you might come to owe them, the various types, and how to deal with them.
Key Takeaways
- Delinquent taxes – Taxes not paid by the deadline, with no payment arrangement or extension.
- Deadline – Tax return due date or the deadline on an IRS bill.
- Consequences – Penalties, tax liens, and possible wage garnishment and asset seizure.
- Options – Pay in full, request payments, apply for a settlement, or get your account marked as uncollectible.
- Next steps – Consult with a tax attorney for guidance.
The Definition of Delinquent Taxes
Generally speaking, any tax that isn’t fully paid by its deadline can be considered delinquent. One major exception to this definition is when a taxpayer makes arrangements with the tax authority to pay the tax late (by getting an extension with IRS Form 1127, for instance) or reaching an agreement to pay the tax over time (setting up an IRS installment agreement, for example).
In these two situations, the taxpayer hasn’t paid their taxes by the original deadline, but they aren’t considered delinquent. Lastly, unless noted otherwise by a tax agency, a “tax debt” or “back taxes” can be considered the same as a delinquent tax.
Types of Delinquent Taxes
Delinquent taxes owed to the IRS for unpaid income or payroll taxes are among the most common types of delinquent taxes. But a tax delinquency can exist with any tax authority and for any tax.
For example, if you have past-due Georgia state income taxes, then you have a tax delinquency with the Georgia Department of Revenue. If you’re behind on your property taxes, then your tax delinquency is with your city and/or county tax assessor.
What Causes Delinquent Taxes?
The basic answer is that it’s a taxpayer who can’t pay their tax bill when it’s due. But what leads to this situation? There are several things, such as the taxpayer:
- Not filing a required tax return.
- Not receiving (or responding to) a notice or letter from the IRS informing them of an outstanding tax bill.
- Missing a tax payment deadline.
- Underreporting income.
- Incorrectly claiming one or more deductions or tax credits.
- Misunderstanding their tax obligations.
- Completing an audit that finds additional taxes owed that the taxpayer can’t pay.
- Not paying required trust fund taxes.
- Going through financial hardship.
What Happens After a Tax Becomes Delinquent?
If you owe a tax to the IRS, they’ll begin sending you letters and notices about your unpaid taxes. They will also apply penalties and interest to your account, and if you continue to ignore the situation, the IRS may attempt to collect the taxes involuntarily.
Collection Notices
The type of tax owed and how many other letters or notices the IRS has already sent you will determine what reminder letters you get from the IRS and when you get them. That being said, common notices from the IRS informing you of a tax debt and warning of more serious collection actions (like a lien and/or levy) include:
Assuming you don’t respond to these notices or pay off your tax balance, the IRS will begin stepping up its collection efforts by preparing to levy your property and/or place a lien on your property. For example, if the IRS plans on levying your property, you can expect to receive a CP504 Notice of Intent to Levy. If you still don’t take care of your delinquent tax, you’ll get an LT11 notice or Letter 1058 just before the levy occurs. If the IRS will use a lien, they’ll file a Notice of Federal Tax Lien and send you a letter informing you of the filing.
Penalties and Interest
Regardless of when you take action to resolve your delinquent taxes, you can expect to pay additional money on top of the original taxes owed. These will usually come in the form of penalties and interest. The exact penalty depends on the taxes owed, but some of the most common penalties for IRS tax delinquency are the failure to file and failure to pay penalties.
The failure to file penalty arises when you don’t file a tax return despite owing taxes. This penalty is 5% of the unpaid tax balance for each month it goes unfiled, with a maximum penalty of 25%.
The failure to pay penalty arises when you owe a tax and don’t pay it. The penalty is just 0.5% for each month your tax bill is not paid, with a maximum penalty of 25%.
In addition to these penalties, you can expect to pay interest. The exact interest rate varies depending on the financial markets, but you can expect an IRS interest rate between 3% and 7% in a normal economy. It adjusts quarterly and is the Fed Short Term Rate plus 3 points – as of Q1 2025, the rate is 7%.
Resolving Tax Delinquencies
There are several ways to deal with tax delinquency. The simplest, yet most difficult for most taxpayers, is to pay the off the tax balance in full. If you can’t afford to do this, there’s the option of paying your taxes over time or attempting to settle through an Offer in Compromise. There are two main ways to do this with the IRS.
Payment Arrangements
First, there are short-term payment plans (sometimes just referred to as “payment plans”). These give you an extra 180 days to pay your tax bill as long as you owe less than $100,000 in combined taxes, penalties, and interest. Second, there are long-term payment plans (usually referred to as installment agreements). These are available if you owe less than $50,000 in combined taxes, penalties, and interest, with the IRS providing up to 72 months to pay off your tax balance. With IRS permission, you may be able to set up payments for longer time periods and/or on higher balances.
Settlement Programs
Another way to deal with delinquent taxes is to ask the IRS to reduce the amount you owe. Your reasons for making this request will determine how you go about doing it. If you believe your delinquent taxes belong to your spouse (or ex-spouse) and not you, you can request innocent spouse relief. If you had extenuating circumstances to explain why your taxes went unpaid, or this is your first tax delinquency with the IRS, you might be eligible for penalty abatement.
Then there’s an offer in compromise (OIC), where you ask the IRS to settle your tax debt for less than the full amount. The OIC is one of the most popular ways to settle a tax debt, as it can sometimes significantly reduce the overall tax bill. But it’s also one of the most difficult to apply to in terms of the application process, eligibility requirements, and time to apply. If you want to submit an OIC to the IRS, it’s highly advisable you first consult with a tax professional with experience handling OICs.
Financial Hardship
If you’re dealing with a significant financial hardship, you can request Currently Not Collectible (CNC) Status. This is where the IRS agrees to pause its collection efforts against you because you can’t afford to pay for basic living expenses in addition to your unpaid taxes. Obtaining CNC Status offers a much-welcome reprieve from IRS collection actions, like liens and levies. Just keep in mind that interest and penalties continue to accrue during the time the IRS is holding off on collecting the delinquent taxes from you.
Challenging or Appealing the Tax Debt
The last notable option for resolving delinquent taxes is to challenge the tax debt itself. You’ll only do this if you believe the IRS made a mistake or there’s a legal reason as to why you shouldn’t have to pay all (or some) of what the IRS is trying to collect from you.
You can only challenge the IRS for certain reasons, such as believing the IRS miscalculated the tax, misapplied the tax, or didn’t follow proper procedures before trying to collect the tax. If you simply disagree with the tax on moral, political, or philosophical grounds, the IRS won’t consider your challenges to the delinquent taxes.
The primary approach to presenting your disagreement to the IRS will be to file an appeal. There are different methods to appeal a tax with the IRS, and the correct process depends on the type of tax, the stage of the collection process you’re in, and your reasons for appealing.
For instance, if you’re appealing a tax lien or levy, you could ask for a Collection Due Process (CDP) Hearing or use the Collection Appeals Program (CAP). You don’t have to hire an attorney to file an appeal through either of these processes. Still, it’s a good idea given the sometimes difficult-to-understand procedures and the nuanced factual and legal arguments that may be required to succeed on appeal.
Another option is to pay the tax in full and file a refund suit in the Federal Court of Claims or Federal District Court in the appropriate district where you are located. This option is less appealing since you have to pay the delinquent tax first, but it can be an effective way of challenging the delinquent taxes if other appeals are no longer available.
Whatever method you decide to use, it’s important not to ignore the IRS or other tax authorities. Doing so not only could lead to the above-discussed repercussions but can also make it more difficult, if not impossible, to obtain credit or sell assets.
Avoiding Delinquent Taxes
The simplest way to avoid tax delinquency is to pay your taxes in full and on time. This is often easier said than done because not everyone has enough money in a bank account or access to sufficient credit to do this. But even if you’re lucky enough to have the financial resources to always pay your taxes before they become delinquent, you could still find yourself with an unexpected tax bill if there’s a mistake with your taxes.
This is why it’s important to consult with a tax professional if you have any questions or concerns with your taxes. Whether it’s helping you file a complicated return on time or getting advice on the best tax avoidance strategies, a tax professional can help you prevent misinterpretations and misapplications of tax law and ensure full tax compliance.
Worried About Delinquent Taxes?
The IRS is serious about collecting unpaid tax debts. If you have delinquent taxes with the IRS or a state tax authority and don’t make arrangements to pay your tax balance, you might have to deal with a tax lien or levy. It’s much easier to deal with your delinquent taxes before the IRS takes these significant collection actions. To learn more about your options, contact Wiggam Law using our online consultation form or by calling (404) 233-9800.