Dealing with debt is never easy, but it can become more complex when your creditor is the US government. The IRS is well-known for deploying multiple collection actions to try and coerce payment. The collections enforce payments down to wage garnishment and property levies. Wherein the IRS claims a portion of every paycheck until your debt is paid or claims and sells any non-exempt assets or property under your possession. But that's where a tax lien release can be of value.

Acting is key to avoiding these collection actions. The more you owe, the more likely the IRS is to act on your tax account – usually starting with a notice of federal tax lien.

What is a Federal Tax Lien?

A lien is a legal claim on everything you own. When a creditor files for a lien, they effectively secure their debt by limiting their ability to seek financing or liquidate assets without first satisfying their debt.

Because the IRS represents the government's interests, its lien supersedes the claim of any other creditor. This means that a federal tax lien can affect your ability to pay off any other debts you might have and hinder your ability to seek financial help without first addressing your tax problems.

Liens are not a direct claim on any of your possessions or property. But they are a vital step in that direction. Ignoring a lien can quickly translate into a levy.

In the not-so-distant past, any notice of federal tax lien also served as a warning sign to credit reporting agencies that you were in trouble with the IRS. The consequences of a tax lien on your credit score were roughly equal to filing for bankruptcy and lasted about as long. This is because federal tax liens are not just sent to you but filed as a matter of public record.

However, in 2018, the US's three major credit reporting agencies officially ended the incorporation of federal tax liens in credit reports. They retroactively removed a federal tax lien's effect on countless accounts.

The official explanation was the IRS issued too many liens to people with good credit and no tax debt. The issue was a lack of communication between the IRS and these credit reporting agencies. In addition, because liens are a matter of public record, they were being reported. Still, it was easy to make a mistake when linking an IRS judgment to the respective taxpayer.

But that doesn't mean federal tax liens have lost their teeth. A tax lien still means the government becomes your priority creditor, which can severely limit your ability to seek financing or deal with other debts without contacting the IRS.

Liens vs. Levies

Liens and levies are the two most powerful tools the IRS can utilize to coerce payment – its two most effective collection actions. Whereas liens represent the government's legal claim, a levy is a physical claim. Through a levy, the IRS can claim the contents of a bank account, claim investment properties, claim vehicles, or issue wage levies until your debt is satisfied.

Not all taxpayers can be subject to levies. The IRS must ensure that its collection actions are not leading to financial distress. Even if your income is high enough to support yourself and your dependents, the IRS is limited to claiming about 15 percent of your weekly earnings through different types of wage garnishment, depending on the number of dependents you back, your filing status, and other factors. Note that federal levies and state levies are separate, just like federal taxes and state taxes. There are several different state-specific lien and levy rules. However, the application of liens is for everyone – including taxpayers who are currently not collectible or have low income.

Tax Lien Release

There is generally only one way to release a federal tax lien – pay off your tax debt. The IRS will release your lien within 30 days after your debt has been fully satisfied. If your lien is not cleared by the end of the 30 days, you can contact the IRS and request a release through Form 13794, Request for Release, or Partial Release of Notice of Federal Tax Lien.

To reiterate, you might not necessarily have to satisfy the entirety of your tax debt to issue a federal tax lien removal. The IRS requires that you either: explore various federal tax lien removal strategies that can help ease your financial burden. These strategies may include negotiating a payment plan, submitting an offer in compromise, or demonstrating that the lien is causing undue hardship. Each option has its own requirements and procedures, so it's crucial to understand which one may be the best fit for your situation.

• Satisfy your tax liability;
• Enter into an installment agreement, agree to automated withdrawals, and make at least three successful and consecutive payments to the IRS; or
• Reach a point where your tax debt is no longer legally enforceable (the tax debt has expired).

If your tax debt is not something you can pay off in a few months, entering into an installment agreement with the IRS and agreeing to automated withdrawals may lead to your lien being released prematurely. The IRS can immediately reinstate your lien if you default on any of your payments, and they will not remove it again until you have satisfied your tax liability.

Withdrawal of Notice of Federal Tax Lien

Once a lien is released, the IRS can withdraw the notice of federal tax lien from the public record. Lien releases will generally take some time, and the IRS will not remove any information after releasing your lien.

While credit reporting agencies no longer check for federal tax liens when calculating credit scores, a tax lien remains a matter of public record. The public record might affect your ability to seek financing for a home or business capital, or it may come up if potential investors do due diligence on your finances. The withdrawal of a notice of federal tax lien can help make the consequences of your tax lien disappear.

Subordination and Discharge

While liens and levies are severe issues for any taxpayer, the IRS is not inflexible. You may have the option of seeking a lien subordination or a lien discharge to help pay off your taxes.

A lien subordination allows you to choose a creditor to supersede the IRS. This will enable you to pay off a vital debt while your account is under a tax lien. A lien discharge removes the IRS claim from a single item.

In general, the IRS will offer lien subordination or lien discharges if they ultimately serve to help the IRS collect its money faster. This is part of the IRS Fresh Start Program benefits, which aim to assist taxpayers in resolving their debts more effectively. By utilizing these options, individuals can regain control of their financial situations while ensuring the IRS achieves its collection goals. Additionally, the program may provide alternative payment plans that ease the burden on struggling taxpayers.

When it comes to tax debt, time is of the essence. Your tax debt continues to grow while you're paying it off, and doing nothing can make it grow faster. Let us help you tackle your tax problems and minimize your tax debt at Rush Tax Resolutions.

You made a mistake. You missed a deadline or had a math error on your return. Perhaps you forgot to report certain income or chose a deduction you didn’t qualify for. Perhaps this year was simply too much, and taxes were the last thing on your mind – leading you to miss Tax Day and incur a penalty for late filing and payment. We’re only human, and mistakes happen. That is why the IRS offers taxpayers the chance to seek relief for penalties (and interest) accrued on their tax accounts because of their mistakes, provided they qualify for IRS penalty abatement.

What Is IRS Penalty Abatement?

Certain circumstances allow indebted taxpayers to qualify for penalty abatement, eliminating or reducing all penalties and interest applied to their tax debt. Penalty abatement does not eliminate your debt, however. If the IRS has assessed your taxes and found you to owe them money, that money must still be paid as soon as possible.

But the penalties and interest added on top may be avoided through penalty relief. It’s important to note that the IRS does not often abate taxpayer penalties – but that may be because penalty abatement is something you must actively appeal for, and most taxpayers don’t bother. For the most part, you are precluded from penalty abatement if:

• You’ve failed to file a return or have had a previous penalty imposed on your tax account in the last three years before this penalty.
• You haven’t yet filed all required returns or filed any applicable extensions.
• You haven’t paid or arranged to pay (via installment agreement) your due tax.

What Penalties Are the IRS Rescinding?

The IRS can penalize a taxpayer in over a hundred different ways, but the vast majority of taxpayer penalties can be summarized as: One common concern among taxpayers is that irs delays payment reporting rule can complicate their obligations. When these delays occur, individuals may find themselves facing additional penalties due to missing or incorrect reporting timelines. It is essential for taxpayers to stay informed and proactive to avoid such pitfalls.

• Penalties on inaccurate or missing information returns.
• Penalties for failing to file a tax return before the due date (without asking for an extension).
• Penalties for failing to pay a tax debt before the due date.
• Penalties for failing to deposit employment taxes and payroll taxes for a business.
• Penalties for inaccurate income reporting.
• Penalties for dishonored checks on estimated tax payments or monthly installments.
• Penalties for underpaying your estimated taxes.

Of these, the three most significant penalties are:

• The failure to file a penalty (accounting for 56 percent of all penalties).
• The failure to pay penalty (accounting for 14 percent of all penalties).
• The failure to deposit penalty (for businesses or individuals in charge of payroll and employment taxes, accounting for 4 percent of all penalties).

Each penalty has its way of calculating what is owed in addition to the initial debt. The penalty for failing to file, for example, is a whopping 5 percent of the total assessed tax debt per month before interest. Failure to pay your debt on time raises your debt by 0.5 percent per month.

Individually, these penalties reach a limit of 25 percent (in five months and 50 months, respectively). However, they are also additive, although the failure to file penalty is reduced to 4.5 percent if the failure to pay penalty is added, for a total of 47.5 percent penalty (25 percent and 22.5 percent) after 50 months.

Information return inaccuracies are penalized by $50 to $580, depending on the charge (such as filing late or intentional disregard). The penalty for the failure to deposit, for example, is two percent of the unpaid deposit in the first five days and up to 15 percent after more than ten days. Other penalties are a flat amount (such as a few hundred dollars) or a per-offense penalty.

What About Interest?

The IRS charges interest on all penalties and debts. And it is a steep interest rate. The IRS charges a flat 3 percent in addition to a variable rate that changes every quarter. The IRS Newswire reports on IRS interest rates and other matters. The IRS Fresh Start Program benefits those struggling with tax debts by providing easier payment plans and lowered penalties. This initiative is designed to help individuals and small businesses regain financial stability while navigating their obligations. In addition, it offers valuable resources and guidance to ensure taxpayers understand their options for relief.

When Does the IRS Offer Penalty Abatement?

There are different forms of penalty abatement. You may want to contact a tax professional and consult them to ensure that you do or do not qualify for tax debt penalty relief. First-time penalty abatement is not solely for first-time offenders. If you have had trouble with the IRS in the past, but it was years and years prior, you may still qualify for penalty abatement this time. In general, you need to: 

• Be up to date with all your tax returns.
• Have no late or missing returns in the last three years and no other penalties.
• Have you paid off your tax debt, or are you in the middle of doing so via a payment plan.

The IRS may also provide penalty relief whenever there is reasonable cause. The key phrase for likely cause is “unforeseen circumstances outside their control.” for example, the IRS may relieve your penalty if you couldn’t file a tax return because you were in the middle of a natural catastrophe.

If you have documented evidence of the IRS providing misleading or false advice, you may seek administrative relief because of an IRS error. However, this can be difficult to argue and challenging to document. If your penalty was the result of your spouse’s doing and affects you because they do your taxes or your taxes are filed jointly, you can request innocent spouse relief.

You may request penalty abatement after paying your tax debt. It is usually in your best interest to do so because the IRS can continue to charge penalties and interest on your tax debt while it is being paid off, even if they’ve abated the other penalties. Waiting until your debt is paid means getting the chance to have all penalties reversed in the form of a tax refund. If you are facing financial strain, it is important to know that there are options available to stop irs wage garnishment effectively. Many individuals are not aware of their rights, which can lead to prolonged stress and financial instability. By seeking professional advice, you can explore solutions such as setting up a payment plan or negotiating an offer in compromise to relieve the burden.

The IRS is a powerful creditor, and they charge steep interest rates. IRS tax penalties can range from minuscule to severe. Yet regardless of how minor or significant your debt has become, dealing with it as soon as possible is always in your best interest. Working with a tax professional may improve your outcome, leading to faster results, better resolutions, and even total penalty abatement. If you're facing challenges with the IRS, it's crucial to take action to stop IRS wage garnishment now. Failure to address these issues can lead to further financial strain and complications in managing your finances. By proactively seeking assistance, you can regain control and work towards a more favorable resolution.

While roughly a third of Americans don’t know whether to expect tax debt or a tax refund, nearly half of surveyed taxpaying Americans expect a tax refund at the end of the tax year. The IRS claims that as many as 75 percent of taxpayers overpay. Tax refunds can range from a few dollars to thousands of dollars, with the average federal tax refund in 2019 being $3,163. That is a lot of money, and, understandably, most taxpayers anxiously follow their IRS tax refund status. But refund payouts aren’t immediate. It can take a few weeks for the IRS to process your refunds and another five to ten days for your bank to clear the deposit or for the postal service to mail your check. Thankfully, the IRS enables taxpayers to keep a close eye on their refund payday via the official IRS website.

Tracking Your IRS Tax Refund Status

The easiest and most convenient way to check your federal tax refund status is online. All you need to check when your refund will arrive is:

• Your social security number OR,
• Your taxpayer identification number,
• Your filing status,
• Your exact refund amount.

You can also check your refund by logging into your IRS tax account on a web browser or logging into your tax account via the IRS2Go app. If you do not know your exact refund amount, use the Refund Amount calculated and indicated on your last tax return. Once you’ve input the proper credentials and information, the IRS will display the status of your tax refund for the most recent tax year that you’re on file. The details on your refund status are updated daily. Still, it takes 24 hours for an electronic tax return to be processed and up to four weeks for a mail-in paper tax return. If you would like to contact a human at the IRS, it is in your best interest to do so at least 21 days after you’ve e-filed or when your refund status report (i.e., the Where’s My Refund tool) tells you to contact the IRS. If you’ve filed a paper return, you will want to count on waiting at least eight weeks before contacting the IRS about your tax refund.

Tax Credit Claimants and Other Delays

Some tax returns take longer to process than others, which can affect and add to the time you might be waiting on your tax refund. If you’ve claimed the Earned Income Tax Credit or the Additional Child Tax Credit, the IRS cannot issue your tax refund until March 1, provided you filed online and choose to get your refund via direct deposit. You will have to count on another four weeks and five days if you sent your tax return in via mail and opted to receive a check via the postal service. Other tax return details which can result in a longer-than-usual wait period include:

• A correction is needed for your Child Tax Credit amount.
• A modification is required for your Recovery Rebate Credit amount.
• Your tax return is incomplete.
• You have become a victim of identity theft or fraud.
• You have included Form 8379 (Injured Spouse Allocation), which can add 14 weeks of processing.

If you are due a tax refund but need to amend your tax return, wait until you have received your tax refund. The IRS recommends sending in your amended return, or a Form 1040-X, after your tax refund has been sent to you.

Tips to Speed Up Your IRS Tax Refund

Tax refunds can take four to eight weeks to be sent to you after filing your return, and longer under certain circumstances. Here’s how you can minimize your wait times:

• File electronically.
• Opt for a direct deposit into a bank account of your choice.
• Start tracking your refund a day after filing it.
• Contact the IRS if your refund is taking longer than 21 days.

What a Big Tax Refund Tells You

A hefty tax refund indicates overpaying and means you’ve been giving the government money you could’ve used when you needed it. If we round down the average federal tax refund to $3,000, an additional $250 a month that the average taxpayer would have had in their pocket. While it is a good idea to stay on the IRS’s good side and avoid needlessly slipping into tax debt – and the penalties it brings – you should consider adjusting your withholding via Form W-4 if your tax refunds are consistently considerable. On the other hand, keeping your refund high and letting the IRS send it straight into a savings or retirement account can keep you from spending money you might not need to spend and gives you a guaranteed annual source of retirement or investment funds.

Choosing What Account the IRS Should Refund To

If you’d like to save your federal tax refund or even put it towards your retirement savings, you can specify the account the IRS will send money to via a Form 1040 or 1040-SR. A Form-8888 (Allocation of Refund) even allows you to tell the IRS to split the money among three different accounts.

What if I Owe the IRS Money, Instead?

If you’ve underpaid rather than overpaid, the IRS will send you a Notice of Due Balance after making the appropriate tax assessment. There will be a deadline for your due payment on the notice, and failing to pay by the said deadline may invoke a penalty for failure to pay at a rate of 0.5 percent of your tax debt per month. Ignoring the IRS can lead to more stringent collection actions and a steeper cost. It’s important to understand your options for IRS payment plans, as they can provide much-needed relief. These plans may allow you to pay your tax debt in smaller, more manageable increments over time. Additionally, being proactive in addressing your tax obligations can prevent further penalties and interest from accruing.

Dealing with the IRS can be difficult, whether you’ve overpaid or underpaid. Minimize your tax-related headaches by working with qualified tax professionals. We at Rush Tax Resolution can aid with all of your tax relief-related needs and help you stay on the IRS’s good side.

The IRS is not an organization you want to be on the wrong side. Even bankruptcy can't save you from tax debt. And if you decide to wait it out and let your debt expire, the IRS is well within its rights to claim your paychecks and your assets to satisfy the overdue balance on your account. Long before that, they can issue a public lien on everything you own, taking precedence over other creditors and locking you out of countless financing opportunities. Thankfully, the requirements for getting rid of your tax debt are straightforward: payment. Worry not; your tax relief payment options are far from limited. Let's explore how tax accounts can resolve their due balance with the IRS.

You Have Back Taxes – What Now?

First and foremost, it's essential to establish your tax assessment date. This is the date listed on the IRS's notice regarding your overdue balance. This date is critical because, barring any tolling periods, it is the date on which your debt will expire ten years from now. Tolling periods are when the IRS cannot collect your debt or enforce collection. These range from being on tour for the military to filing for and being involved in an ongoing bankruptcy case. Tolling periods freeze time on your debt's collection statute, meaning ten years can become twelve or more. Until your debt expires, the IRS can resort to different methods to incentivize or coerce payment, including penalties, interest, and collection actions.

In addition to the initial notice of overdue tax payments, the IRS will also issue a warning regarding penalties accrued on your tax account. Failure to pay taxes by the deadline on your notice will result in a penalty of 0.5 percent of your total unpaid taxes each month, up to 25 percent. Your debt can also accrue interest. Interest rates are determined by the IRS' quarterly federal short-term interest rates, plus three percent. That is typically more than what you'd pay on a bank loan, so you are incentivized to take care of your tax debt quickly. Your payment options are defined by the IRS' payment plans.

Navigating IRS Payment Plans

IRS payment plans come in three primary offers: pay now, pay within 180 days, or pay in monthly installments (for longer than 180 days). Setting up a payment plan online is easier and cheaper than any other method. Still, there are eligibility limits – you need to owe less than $50,000 to set up an online installment payment plan and less than $100,000 to set up an online short-term payment plan.

Full Payment

Paying in full requires no setup fee or ongoing penalties and interest. You can pay by check, money order, via debit/credit, through the Electronic Federal Tax Payment System (EFTPS), or through a checking/savings bank account via the IRS's Direct Pay function.

Short-Term Payment Plan

Short-term payment plans require you to complete payment within 180 days via multiple lump-sum deposits. Again, there are no setup fees, online or otherwise. You will continue to accrue penalties and interest until the debt is fully paid.

Long-Term (Installment) Payment Agreement

An installment agreement may be their best hope for a financially feasible payment plan for taxpayers whose debt might have taken them by surprise. Installment agreements cost money to set up, depending on whether you're opting for a direct debit plan (wherein the IRS makes automatic monthly withdrawals from your account) or a manual payment plan. Direct debit plans only cost $31 to set up online and $107 to set up via phone or in-person (for debts over $50,000). Paying off your own volition drives up the price for online setup to $130 and $225 otherwise.

Low-income taxpayers may have their fees waived if they opt for direct debit or need only pay $43 for a manual payment plan (this fee may be reimbursed later). To qualify as a low-income taxpayer, your adjusted gross income must be at or below 250 percent of the federal poverty level. Form 13844 helps taxpayers determine eligibility as low-income applicants. Setting up an installment agreement online is the easiest way to get started on your debt payment. But suppose you are ineligible for an online payment plan. In that case, you must print and fill out Form 9465, Installment Agreement Request, and may be required to fill out Form 433-F, Collection Information Statement, for further financial information pertinent to your payment plan.

What If You Don't Pay?

Failing to address your tax debt with the IRS puts you at risk for collection actions. The IRS's most powerful collection actions include filing a public notice of tax lien and issuing levies on your wages, assets, and properties. A tax lien is a legal claim on everything you own, taking precedence over other creditors. This makes it harder to liquidate assets, pay off debts, or secure a loan without first talking to the IRS. A tax levy is a physical claim on an asset, account, or a portion of your monthly wages. While a lien is one-time and continuous, a levy claims one asset or account at a time, and the IRS may resort to multiple levies to satisfy your debt. Understanding backup withholding tax implications for freelancers is crucial for managing potential tax obligations. Freelancers may find themselves subject to backup withholding if they fail to provide accurate taxpayer information, which can lead to unexpected tax liabilities. It is advisable for those in the freelance sector to keep detailed records and consult a tax professional to ensure compliance and avoid complications with the IRS.

Jail Time

Technically, not paying your taxes is a crime. It's not a crime to be behind on payments or struggle to meet ends. But it takes a lot to push the IRS towards threatening jail time. Willfully ignoring the IRS' attempts to communicate with you and set up a payment plan will lead to a wage levy or asset seizure long before the IRS thinks of putting you behind bars. While avoiding your taxpayer duties is illegal, the IRS only pursues intentional tax evasion and clear cases of criminal activity or financial fraud, rather than threatening every taxpayer who has made a mistake on their return with a felony charge. If you find yourself in a position where you need to file back taxes without documentation, it's important to gather any available records that could help substantiate your income and expenses. The IRS has procedures in place for taxpayers facing difficulties, and reaching out to them can provide clarity on your options. Ignoring the situation may cause further complications, so addressing it proactively can help mitigate potential penalties.

What If You Can't Pay?

In theory, the amount of tax you owe never exceeds the amount of money you make. But personal and financial circumstances can change on a dime, and as we've mentioned earlier, the tax debt can accumulate. If you find yourself in the unfortunate position where you owe the IRS more money than you can afford to pay now, you're not entirely out of options yet. The government may be a powerful creditor, but it isn't a loan shark. Partial tax debt forgiveness exists in the form of an offer in compromise. You can propose this payment plan to the IRS based on your financial situation and what you can afford to pay within a reasonable period. Filing back taxes with attorneys can provide you with the expertise needed to navigate complex regulations and negotiate effectively with the IRS. They can help identify potential options for relief and ensure that your rights are protected throughout the process. It's essential to choose a knowledgeable attorney who is experienced in tax law to maximize your chances of achieving a favorable outcome.

To set up an offer in compromise, you need to figure out what you can afford to pay every month (based on your income after taxes) and what you can manage to liquidate. The IRS considers this your reasonable collection potential (RCP), minus exempted assets (such as your own home and roof) and some cash. In addition to your offer, you may need to forward financial information to back up your projected RCP. If the IRS thinks you can pay more based on your provided info (and information gathered through other sources), your offer will likely be rejected. If approved, an OIC can help you minimize your debt and keep the IRS from resorting to levies and asset seizures. You should also be aware of the irs one time forgiveness details, as this program might further alleviate your tax burden. Understanding the specific criteria and application process can be crucial in maximizing your chances of qualification. Consulting with a tax professional who is familiar with these options may provide additional guidance tailored to your financial situation.

If you cannot apply for an offer in compromise and suffer from financial hardship, your only option may be to qualify as "currently not collectible temporarily." This will halt all collection actions, but it does not keep penalties and interest from accruing. While offers in compromise used to be much tougher to qualify for, they still aren't a guaranteed form of debt reduction. It's highly recommended to consult a tax professional before you draft your offer in compromise.