Back taxes are taxes — typically from the previous year — that were not paid at the time they were due and remain outstanding.

You can owe back taxes for a lot of reasons, such as: 

  • Filing a return and failing to pay the amount owed
  • Failing to report all earned income during the tax year
  • Not filing a tax return altogether

These actions can be intentional — like deliberately underreporting income — or unintentional, like not designating enough money to be withheld throughout the year.

What Happens If I Don't Pay Back Taxes?

If left unpaid, back taxes can accumulate significant interest and penalties over time.

To avoid getting penalized for not filing, we always advise filing your returns on time even if you can’t pay the balance, instead of not filing at all.

Here are the two most common penalties and what they’ll cost you:

  • Failure to File: Owed interest plus a 5% penalty for each month the return is late, up to 25% of the overall tax bill. The IRS can even submit a substitute return on your behalf, which may not include any credits or deductions that would offset the amount you owe.
  • Failure to Pay: Owed interest, plus a 0.5% monthly late fee.

Depending on the circumstances, the IRS may take extreme measures to get you to pay, such as garnishing your wages, placing a lien on your property and more.

How to Resolve Back Taxes

While owing back taxes can be scary, it’s best to be proactive when it comes to dealing with the IRS. Here are some approaches and strategies that can help to resolve past-due taxes:

1. Negotiate a payment plan with the IRS.

In some cases, you can set up an IRS payment plan, also known as an installment agreement. The terms and conditions of the agreement will depend on the details of the situation, including how much you owe and how long it will take you to pay back the balance in full.

2. Request a short-term extension.

You can also request an extension to pay the full tax balance. There is no fee to request an extension, but the IRS will charge interest and a late payment penalty of 0.5% per month on the unpaid balance.

3. Apply for a hardship extension.

The IRS offers various options for taxpayers in hardship situations. This includes the Offer in Compromise and Currently Not Collectible status. To qualify, you will have to prove that paying the tax would cause significant financial hardship, according to IRS standards.

4. Partner with a qualified tax professional.

Your best option is to work with an experienced tax professional to negotiate with the IRS on your behalf. Navigating the ins and outs of a bureaucratic organization can be quite confusing and messy, and you could wind up paying more than necessary. A seasoned tax expert can guide you through the process and provide a clear path to financial freedom.

Get Help

Schedule a free consultation with one of our tax associates and get your back taxes resolved.