Delinquent Taxes: What Are They and How Can They Affect You?

Delinquent taxes can lead to dangerous consequences from the IRS, but what exactly are these taxes, and how can they negatively affect you?

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Tax Day falls on mid-April nearly every year, with certain exceptions (such as 2020 and 2021, due to COVID-19). All eligible taxpayers contribute to the government’s coffers throughout the year, but Tax Day is the day every eligible American must complete and file their individual income tax returns.

These returns represent a crucial data point for the federal government, which cross-references them with information gathered from other citizens, institutions, companies, and organizations. This is how the IRS determines whether a taxpayer still owes taxes for the year, catches and corrects mistakes, or spots potential fraud. Therefore, it is every taxpayer’s duty to fill out and file their returns and do so before or on Tax Day.

Sometimes, inconsistencies, mistakes, financial changes, or even just forgetfulness on the taxpayer's part can lead to an overdue balance on a taxpayer’s account.

Furthermore, unfiled tax returns or filing late can lead to a penalty, which can grow into substantial debt if left unpaid.

Regardless of how your tax balance grew, if the government finds that you owe unpaid or delinquent taxes, you have a short grace period before it begins levying collection actions against you and your assets and belongings.

What Are Delinquent Taxes?

Most taxpayers pay taxes on a regular basis through wage withholding or recurring payments to the government.

Delinquent taxes are often the result of:

- - Unpaid late penalties;
  - Unpaid taxes after the IRS discovered and corrected a mistake on your returns, or;
  - An overdue balance after a profitable year, in cases where the IRS finds that your estimated payments don’t accurately reflect what you owe based on your income and deductibles.
  - You may also have been marked for delinquency if you failed to meet a payment deadline.

The IRS does not take kindly to delinquent taxes and has the means to retaliate harshly. The IRS’s toolkit for combatting tax debt takes the form of the Collections Process and can include claiming a portion of your wages through wage garnishment, placing a tax lien on everything you own, and even selling your properties to cover your debt.

When does the IRS Send a Notice of Delinquent Taxes?

If you fail to file your tax return, the IRS will send you a notice regarding your late return and the penalties you are facing for delinquent taxes.

If your return shows that you owe taxes, the IRS will send you a bill for the due amount – as well as provide a payment deadline, giving you a window in which to cover the late amount or face late payment penalties.

These penalties stack and are unrelated to the accruing interest rate on your growing tax debt, which changes on a quarterly basis.

In general, once the IRS sends you a bill, you have limited time to act before your debt grows. It is at this point that the IRS will begin to utilize certain collection actions to coerce payment.

The tax assessment date provided on the notice of delinquent taxes from the IRS also serves as a point of reference for your tax debt’s statute of limitations, or eventual expiration date - ten years into the future.

Can I Wait Out a Tax Debt?

Tax debt lasts ten years, plus any tolling periods (such as military deferment, bankruptcy, entering a payment plan, and anything else that keeps the IRS from utilizing collection actions against you). But the IRS can also bump up the pressure on their collection process before those ten years are up.

In cases where a tax debt has gone unnoticed for some time, the IRS may convince taxpayers to enter into a much more favorable payment plan in exchange for an extension on the expiration date. However, this is usually rare.

Unless your only tax debt is an unpaid debt from nearly ten years ago, you’re definitely better off negotiating a payment plan as soon as possible rather than letting your debt pile up over the years.

What If I Can’t Afford to Pay?

Some taxpayers try to avoid filing their taxes because they know they can’t pay their existing debt. This is a bad idea. You should always file a tax return if you are eligible for one.

This is because failing to file will always incur a penalty, and it is required for taxpayers to be up to date with their tax returns before the IRS accepts any kind of payment plan, including a partial payment plan.

Even if you cannot afford to pay off the entirety of your tax debt within the debt’s remaining lifetime, it is a much better idea to negotiate a partial payment plan through an Offer in Compromise with the IRS than try to wait it out. The IRS can and will resort to levies and even potential criminal charges if you try to intentionally avoid paying taxes.

An Offer in Compromise involves proposing a reduced tax debt based on what you can afford to pay, in exchange for reduced penalties and an end to the collection actions the IRS may utilize against you (including levies).

An Offer in Compromise is usually only successful if you can prove to the IRS that you don’t have the financial means to pay down your full debt.

The Importance of Working With Tax Professionals

Tax professionals can help you negotiate a payment solution with the IRS and help you prepare and prevent future problems through careful tax management and return filing services. They can also guide you through the various tax debt relief options available, ensuring that you choose the best strategy for your financial situation. By understanding these options, you can take proactive steps to alleviate your tax burden and safeguard your future. Working with a knowledgeable tax advisor can make a significant difference in navigating these complexities.

The last thing you want is to waste time negotiating a failing payment plan. Professional help can save you a lot of crucial time.

The best piece of advice we can give you is to act as soon as possible. It’s in your best interest to get in touch with an experienced tax professional right away, but one way or the other, the last thing you should do when facing the IRS is dawdle.

IRS penalties and interest rates are no joke, and even a meager debt can quickly pile up to an unmanageable sum.

If you’re in trouble with the IRS, get help as soon as possible. Our tax professionals at Rush can help guide you through the collection process and resolve your delinquent taxes.

7 Tips for Resolving Tax Debt: A Taxpayer's Guide

It can be incredibly stressful trying to resolve tax debt, but with the help of a tax professional and these 7 tips, you can get back on your feet.

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Both state and federal governments take tax debt very seriously, to the point of levying criminal charges on those who willfully ignore their taxes or attempt to illegally evade their responsibilities as taxpayers. But for the vast majority of Americans, tax debt is a consequence of simple clerical errors, missed deadlines, missed payments, and financial hardship.

Thankfully, both state and federal tax authorities are usually understanding of most tardy taxpayers’ circumstances – provided they are forthcoming and cooperative.

However, state authorities and the IRS alike can switch attitudes on a dime – and have the means to aggressively pursue a person’s tax liability far beyond most other creditors.

Regardless of the size of your debt or what authorities you’re indebted to, when it comes to tax debt, there is one central tip: deal with it quickly. Penalties and interest rates for tax liabilities tend to be steep, and tax debts take a long time to expire. Furthermore, the government can postpone expiration through tolling periods and by coercing you into an extension agreement. Don’t let this fight drag out.

How the Government Responds to Tax Debt

Years of weakened funding means the IRS has become a little choosier with whom it pursues – but they do try and collect on every debt they can.

When the IRS notices that a taxpayer has a discrepancy on their account, missed a payment, or has otherwise incurred a negative balance, they will provide a bill and deadline to cover the liability – failing to respond, and missing the deadline, will begin the IRS collection process.

The IRS will aggressively pursue larger debts – but that doesn’t mean that your smaller tax debt can’t quickly grow into something that catches the IRS’s interest, especially if you decide to drag your heels for too long.

State authorities are much quicker to notice a debt and typically begin collecting actions sooner than the federal government. In both cases, tax authorities escalate through a number of steps, starting with a tax lien to secure their legal claim on your assets and accounts and culminating in a levy against your accounts, assets, and wages to cover the liability.

Tax liens and levies are the strongest tools in the arsenals of the IRS and state tax authorities, allowing them to effectively supersede other creditors and take what is owed. However, tax authorities give you ample warning before beginning such drastic collection actions.

In the past, a federal tax lien used to be a black mark on your credit score, comparable to a bankruptcy. The IRS has since changed this. Credit reporting companies no longer factor public liens into an individual’s credit score – however, missing payments on a loan due to a lien or debt with the IRS can adversely affect your credit.

Tips for Resolving Tax Debt

Regardless of whether your debt amounts to the total cost of a fancy dinner or a five-figure sum, the one thing you need to pay the most attention to is time.

Neither state authorities nor the IRS tend to dawdle when the opportunity presents itself to collect on a debt. Their terms are often less favorable than those of most other creditors. Our first tip would be to try and figure out an installment plan as soon as possible.

Enter into a Payment Agreement As Soon as Possible

There are steep penalties and interest rates for failing to file a tax return and failing to pay an outstanding tax debt. These penalties and interest rates compound over time and can drastically increase the size of your debt.

First-time tax debtors can seek to excuse the penalties and reduce the interest rate by entering into a payment plan. Payment plans and installment agreements may be handled differently from state to state, but when dealing with the IRS, taxpayers have the choice of either:

- - Paying everything at once.
  - Paying in multiple lump sums within 120 days (negotiable up to 180 days under certain circumstances).
  - Paying in monthly installments (until the debt is completely paid, or expires, whichever comes first).

There are limited setup fees for starting an installment plan with the IRS, and the IRS will generally agree to any plan as long as it allows you to settle your debt before the statute of limitations (10 years from the tax debt assessment date, plus tolling periods).

Consider working with a tax professional to determine how much you should pay on a monthly basis to avoid falling behind on your payments. Missing payments can cause you to default on your plan, increasing your interest rate (and subsequently increasing your debt). As a result, your debt continues to grow at a reduced interest rate while you’re paying it off.

Learn About Offers in Compromise

If you have determined that you don’t have the financial means to pay off your debt, you may be able to get the IRS to agree to an offer in compromise. This is essentially a system to help taxpayers write their debt off by paying as much as they reasonably can within the debt’s lifetime. In addition to offers in compromise, there are various tax relief options for individuals that can alleviate your financial burden. Exploring programs such as installment agreements or innocent spouse relief may provide further assistance in managing unpaid taxes. It's essential to research and utilize these resources to achieve a more manageable financial situation.

The kicker is that the IRS will review the information that you send them and information gathered from other sources to determine just how much you can pay. And if your offer undercuts what they think you can pay, it will be rejected.

Work with a Tax Debt Professional

It is best to consult a tax professional when tackling a debt with your state or federal tax authorities – especially if you’re unsure how to pay it off.

An offer in compromise must be considered very carefully because your debt will continue to grow while the IRS deliberates your offer – meaning a rejection translates into even more time spent waiting before you can start paying your debt off.

Get Your Tax Returns Professionally Reviewed

One of the prerequisites for any payment plan is to be completely up to date with your tax returns. If your debt was the result of a delayed or erroneous tax return, to begin with, you might want to consider a professional tax preparation service as well. This can help you avoid similar issues in the future and can help you meet your tax return deadlines – and remove yet another headache.

Don’t Fall Behind on Payments

Once you’ve entered into a plan with the IRS or your state authority, you cannot fall behind. There are severe penalties for being late on your payments. it's essential to be aware of the irs audit time limits explained. Understanding these time frames can help you prepare and avoid surprises down the line. Remember, even if you’re compliant, the IRS has specific periods during which they can question your returns.

Lift Your Liens and Levies

Entering into a payment plan with the IRS can be your first step towards lifting a lien, as well as avoiding further collection actions. The IRS will continue collection actions if you default on your plan or stop paying.

If you are under financial duress, you can contact the IRS to halt collection actions temporarily. This will not stop interest rates, nor will it lift the lien. But it will prevent a levy. Note that being marked as not collectible counts as a tolling period, extending your debt’s lifetime.

Tax Debt Can Expire (Eventually)

There are different tolling periods that can extend a tax debt’s 10-year lifespan. These include:

- - Being out of the country for a long time
  - A military deployment of over six months
  - Being currently not collectible
  - Litigation
  - Bankruptcy proceedings
  - A few other key periods where the IRS and other tax authorities are blocked from taking certain actions against your account

If you’re in trouble with the IRS, don’t hesitate to seek help in figuring out your next steps, call Rush Tax Resolution today. Understanding tax resolution services explained can help you make informed decisions about your financial future. These services often provide strategies to reduce tax liabilities and assist with negotiations with the IRS. By enlisting professional help, you can alleviate the stress of tax issues and work towards achieving a more secure financial situation.

Can You Have 2 Installment Agreements With the IRS?

If you are experiencing tax debt and owe money to the IRS, you have the option of creating a payment plan, also called an installment agreement; but can you have 2 installment agreements with the IRS?

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Can you have 2 installment agreements with the IRS? Not exactly. When you owe taxes, the IRS allows you to reduce your penalties and interest rate while paying down your balance over time via an installment agreement. As long as you adhere to the terms of the agreement, you can avoid further collection actions and work your way through your debt at a reasonable pace.

If you’ve realized that, due to financial constraints, you’re unable to pay your taxes for a subsequent year, you can choose to fold your debt into your existing installment agreement.

To reiterate – you cannot have two installment agreements with the IRS. However, you can pay off more than one tax debt through your existing installment payment. When managing your finances, it's crucial to understand the terms of any installment agreements with the IRS. Staying compliant with these agreements can help avoid penalties and ensure that your tax obligations are met. If you're unsure about the specifics, consulting a tax professional can provide clarity and assistance tailored to your situation.

When you owe the government money, the IRS marks a deficit on your tax account. Further debt accrued simply increases that balance due. Your installment payment can be altered to reflect a change in your balance. You can request this change by contacting the IRS directly, through your local IRS office, with the help of a professional IRS tax attorney or by calling 1-800-829-7650. Alternatively, you can fill out Form 9465 with the requested relevant information.

How Do IRS Installment Agreements Work?

Tax debt is a severe problem. The IRS takes its duty to collect taxes very seriously – and has the means to take priority over other creditors when it seeks to collect what is due.

As a taxpayer, you have an obligation to pay your taxes on time. Failure to do so can result in financial penalties and accruing interest. Intentionally avoiding tax payments can even be a crime.

As your tax debt grows, the IRS will continue to take increasingly drastic measures to try and collect what is owed.

While you cannot have 2 installment agreements with the IRS, a payment plan allows you to avoid further collection actions and work on paying off your debt. There are two ways to enter into an installment agreement with the IRS:

1. Short-term payment plan:

Any payment plan that stipulates total payment within 180 days, usually in the form of one or more lump sums.

2. Long-term payment plan:

A monthly installment payment plan of any length longer than 180 days (up until the debt is paid or hits its statute of limitations).

An installment agreement can be set up entirely online or via mail or phone. You can also set up an installment agreement in person. Under most circumstances, it is cheapest to set up an installment agreement electronically. Currently, however, short-term payment plans can only be set up via mail or phone.

There are limits to how hefty a taxpayer’s debt can be for certain payment plans. For example, taxpayers with a total tax debt exceeding $50,000 do not have the option of paying their debt through a monthly payment plan. It is also worth noting that tax balances over $25,000 must be paid via Direct Debit.

Note that there are a few stringent requirements for entering into a payment plan, and there are several things you should note if you wish to avoid defaulting.

Installment Agreement Requirements

One of the most important requirements is that you are completely up to date with your tax returns. Even if you can’t pay your taxes, the IRS will not accept an installment agreement unless you’re caught up with all of your returns, so it is imperative that you do not have any unfiled tax returns. The IRS will check at least the last three years, and generally up to six years, to determine if you’ve been keeping up with your returns and are eligible for an installment agreement.

Being late or accruing an additional tax debt without requesting that it be added to your previous tax balance can lead to a default. Setup fees can be waived if you qualify as a low-income taxpayer. Other tips include:

- - Pay your minimum monthly payments when they’re due.
  - File your subsequent returns on time for the duration of the installment plan.
  - Note that all your future tax refunds will automatically go towards paying off your debt until the debt is paid (stimulus checks or Economic Impact Payments are not a tax refund, even though they are sent out via the Treasury and IRS).

What if I Don’t Pay?

A default in a payment plan means the IRS will continue to levy collection actions against you. These range from a federal tax lien (a public notice letting the government take priority over all current and future creditors, making it harder to seek financing or loans) to a levy on your assets or wages.

What if I Can’t Pay?

If you cannot afford to pay off the entire debt over the course of its lifetime (ten years from the date of assessment on your initial notice, plus tolling periods), the IRS may consider an Offer in Compromise.

Considering an Offer in Compromise

An Offer in Compromise is a payment plan specifically built to allow you to avoid financial hardship while dedicating nearly all non-essential assets and income to your debt. The IRS takes assessing these offers very seriously and will not accept an offer that they consider to be too low based on the information you provide them.

If you do consider an Offer in Compromise, it is in your best interest to speak to a tax professional. The IRS will not levy collection actions against you while evaluating your offer, but your debt will continue to accrue penalties and interest. Put your best foot forward by working with an experienced professional to set up an offer.

Exploring Other Options and Navigating the IRS

The IRS does not leave much room for interpretation when it comes to tax debts – you will have to pay, sooner or later, and always to the best of your abilities.

An experienced tax professional can navigate the IRS’s rules, statutes, and payment options to help you find the best way to eliminate your tax debt. Take the guesswork out of paying off your debt by speaking with a tax professional today.

CONTACT RUSH TAX RESOLUTION TODAY!

You Received a Notice of Intent to Levy (Notice CP504). Here's What to do Next.

If you have received a Notice of Intent to Levy (CP504), here are the steps you should take to put an end to your tax debt.

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The US government is the country’s most powerful creditor in terms of how far-reaching its ability to lien and levy tardy taxpayers can be. Once the government catches wind of your tax debt, they will initiate the collection process and begin pressuring you to cover your outstanding balance.

Attempts to ignore the government’s notices and letters can result in a Notice CP504, or a Notice of Intent to Levy. This is one of the last notices the IRS will send your way before they begin seizing your assets and accounts to pay for your tax debt.

The IRS usually does not resort to levies until a significant amount of time has passed without any attempt on your behalf to pay the debt or get in touch with the IRS to set up a payment plan. Thankfully, you can still salvage the situation if you act now.

What is a Notice of Intent to Levy (Notice CP504)?

At its simplest, the Notice of Intent to Levy is a severe warning shot fired by the IRS if they have reached the point in the collection process wherein their best shot at getting the money owed to them is via one or more levies. A levy is a physical claim of an asset, the contents of an account, or the portion of a debtor’s wage by a creditor.

However, a Notice of Intent to Levy does not immediately translate into a levy. The IRS is obligated to go through several steps before it can start claiming what it’s owed, and receiving the notice kickstarts a 30-day grace period before the levy begins.

Within those 30 days, the IRS will also:

- - Explain your right to appeal the levy within the next 30 days.
  - Include an explanation for the levy and how the seizure will begin, as well as your immediate options.
  - Ensure that you receive the Notice CP504.

There are times when the IRS will skip the 30-day period, although these are rare. They include cases where the IRS believes that waiting will jeopardize the government’s chances of collecting (such as when a tax debt is close to expiring).

Here’s What the IRS Can Levy

If you fail to respond to Notice CP504, set up a payment plan, or outright pay off your tax debt, the IRS will be eligible to begin seizing certain assets. Here is what the IRS can claim during a tax levy:

- - Social Security benefits
  - A portion of your wages (based on number of dependents and income)
  - Personal property
  - Vehicles
  - Real estate property
  - Rights to property
  - Commissions
  - Retirement benefits
  - Payments due to you
  - Government benefits provided by the OPM
  - Bank accounts

If you want to figure out what is exempt from being claimed as a levy on income or wages, consult IRS Publication 1494.

If the IRS claims your income or wages, it will take a portion of your filing status, income, and number of dependents until the debt is paid.

Additionally, if the IRS levies property or assets, it will claim a property, liquidate (sell) it based on its quick sale value (QSV), and use the proceeds to cover your debt. If the proceeds from the sale were not enough to cover the debt, as well as penalties and interest, the IRS will levy something else. If it was more than enough, the IRS will send you the remainder.

Here’s What You Should Do Next After a CP504

There is only one guaranteed way to deal with a Notice of Intent to Levy – by paying the taxman in full. The IRS does not stop any collection actions unless: understanding federal tax liens is crucial for taxpayers who want to protect their assets. When the IRS files a lien, it can affect credit ratings and hinder financial transactions. Being informed about these implications can help individuals make better decisions regarding their tax obligations.

- - The taxpayer is in a payment agreement with the IRS and has not missed any payments.
  - The taxpayer is in financial trouble and is currently uncollectable.
  - The taxpayer has successfully appealed the IRS’s decision.

To that end, your best bet is to confront the debt. There are, thankfully, multiple different ways to deal with a tax debt to the IRS, aside from outright paying it all off at once. Your next step should be to talk with a tax professional and figure out what options your circumstances allow.

Dealing With the IRS

You have multiple options when dealing with a tax debt to the IRS. The first and most obvious is to start paying off your debt. The IRS offers two different types of payment plans (short-term and long-term) for taxpayers looking to halt collection efforts. In most cases, the IRS will reduce the interest rate and halt certain collection efforts once you’ve made at least three consecutive payments in your plan.

If this was your first time getting into trouble with the IRS, or if certain circumstances such as a disability hindered you from understanding the extent of your debt, you can have certain penalties stricken from your total debt as part of a penalty abatement.

Offer in Compromise

An offer in compromise is often considered the holy grail of tax debt resolution, but it is not something you can trick the IRS into offering.

Should you be entirely out of other options financially, you can work with the IRS to figure out a reduced payment plan that would allow them to recover at least part of what you owe them within the rest of the debt’s collectible lifetime (i.e., before the statute of limitations).

You can use a pre-qualifier tool to see if you are eligible for an offer in compromise, to begin with, but note that such a tool is no guarantee that the IRS will accept your offer. Again, a tax professional can be of further assistance and help you determine if an OIC is a real option for you.

Currently Not Collectible

IRS collection actions are halted if they are causing financial hardship. In these cases, the IRS can mark your account as currently not collectible (CNC) and will not levy your assets or properties but will continue to hold a lien over what you own. As a result, your tax debt will continue to accumulate interest and relevant penalties.

Your CNC status will be reviewed periodically to determine if your financial situation has improved.

Innocent Spouse Relief

Suppose your spouse is in charge of filing jointly for you and has failed to file on time or pay your taxes. In that case, you might be able to reduce or eliminate your tax debt by appealing for innocent spouse relief.

Not all tax debt qualifies for innocent spouse relief. The IRS can figure the amount you are responsible for after you fill out and send Form 8857.

Whatever You Do, Get a Pro

The IRS has a responsibility to respect the taxpayer's rights in any given interaction and ensure fair treatment. But the IRS is in the business of collecting taxes for the government, and they are incentivized to protect the government’s interests above all else.

To that end, they will inform you of what they must – but are not required to advocate for you.

If you received a Notice of Intent to Levy (CP504), do not go into a confrontation with the IRS without a professional advocate at your side. Even if all you want is a quick bank levy release and amicable end to your tax debt problems, a tax professional can help you navigate the situation and find the swiftest way to put it behind you.

CONTACT OUR TAX PROFESSIONALS TODAY!

5 IRS Penalties to Know (and How to Avoid Them)

IRS Penalties are one of the ways they try to urge taxpayers to consider their tax debt more seriously. Learn how to avoid them before it hurts you.

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There are some penalties that are worse – and more surprising – than others. Knowing what IRS penalties they can send your way and how best to avoid them can keep a simple tax debt from becoming a crippling financial burden.

Sometimes, life can spin out of control or lead us into circumstances we never intended to face, and things like a late tax return or an overdue tax balance of a few thousand dollars seem far less important than much more pressing, immediate, and perhaps even existential worries.

But regardless of these circumstances, a debt is a debt, and the IRS commands an unparalleled arsenal for pursuing and punishing debtors. There are few ways to avoid the IRS – but you can negotiate with them and take measures to avoid unnecessary penalties and fees.

Failure to File a Tax Return

The first IRS penalty on the list is arguably the most pernicious, because it catches many indebted taxpayers off guard. If you owe a tax liability to the IRS, then you might feel that it’s pointless to send in a tax return. After all, if you can’t afford to pay your taxes, why go through the trouble of doing them at all?

Sadly, this kind of thinking can lead many taxpayers into an even greater debt trap. This is because the IRS requires all indebted taxpayers to file every late tax return for at least the last three, if not six years, when working with the IRS to eliminate a tax debt. This means that even if you cannot afford to pay your taxes, you are required by law to file your applicable tax returns and failing to do so means going back over the returns you missed and filing them after the fact if you want to have a chance at getting the IRS off your back, and fully paying off your debt.

For every month that your tax return is late, the IRS tacks on an additional 5 percent of your total tax debt, for a maximum of 25 percent after five months. This is a substantial penalty and can add a lot of volume to your debt for no reason other than the fact that you didn’t file the necessary paperwork.

Failure to Pay Outstanding Taxes

The second penalty we will discuss is the more obvious one – a penalty for failing to pay your tax balance. This is a much smaller penalty of only 0.5 percent every month, for a maximum of 25 percent after 50 months (over four years). This penalty can be halved (0.25 percent per month) if you enter a payment plan with the IRS, until your debt is fully paid.

It should be noted that this penalty does not stack with the failure to file penalty. This means that if you skip both filing this year and can’t pay your taxes, you will be charged 5 percent per month for the first five months, and then an additional 0.5 percent for each month until you enter into a payment plan with the IRS.

Failure to Pay Estimated Taxes

Some taxpayers are expected to pay estimated monthly or quarterly taxes, such as taxpayers who file as self-employed, or taxpayers who owe more than $1,000 in taxes per year after subtracting all applicable deductions and credits. Failure to make your estimated payments on time will lead to IRS penalties, based on what you owe, as well as monthly interest on your outstanding tax bill.

Sending a Failed Payment

This one may be a bit rarer but can still occur. The IRS will penalize you for any payments that failed or were rejected, from bounced checks to rejected credit cards and bank accounts. For payments of more than $1,250, the IRS will charge you an additional 2 percent of the payment as a penalty for failure.

There is Interest on Tax Debt

In addition to penalties stacking up to 25 percent of the total tax debt (50 percent of the total tax debt for both failure to file and failure to pay after about four years), there is an interest rate of 3 percent plus the current federal short-term rate on any tax liabilities a taxpayer has. This is updated every quarter, and the information can be reviewed on the IRSs official website.

First Time Debtors Can Seek Relief

Interest and penalties can be completely wiped off of a taxpayer’s tax debt – provided this is the first time they have incurred a tax debt, or provided they were somehow unable to receive information about how their debt would grow due to not receiving notices from the IRS. These one-time forms of IRS penalties abatements are called the Penalty Relief Due to First Time Penalty Abatement, or Other Administrative Waiver. Some other requirements for having your first-time penalties waived include:

- Being in the process of paying back your taxes, without any bounced payments or late payments.
- All tax returns have been filed, including the late ones.

Consider Your Tax Refunds

If you are eligible for some kind of tax refund or credit, the IRS will usually pull from said refund/credit to pay for your penalties. They will generally also subtract said refund/credit from your tax liability. They will then send you a notice for whatever balance remains (whether it is a smaller refund or a liability on your end). Understanding IRS audit timeframes explained can help you better prepare for the process. Generally, the IRS has three years from the date you filed your return to initiate an audit, but this period can be extended in certain situations, such as when there is substantial underreporting of income. Knowing these timelines can assist you in gathering necessary documentation and understanding your obligations during an audit.

Other IRS Penalties On Taxpayers

Penalties and interest are meant to act as timers to get taxpayers to take action against their debt by arranging to pay it sooner – but the IRS does have other tricks up its sleeve to coerce payment in cases where a taxpayer has a substantial debt to the government and isn’t paying. The two most significant tools in the IRS’s arsenal are the federal tax lien and the tax levy.

A tax lien is a legal claim on all the property and assets a taxpayer has. It does not constitute taking anything, but rather denotes that the IRS takes precedence over any lender or creditor. Also, should the taxpayer liquidate an asset, the IRS will be first in line to receive a payment.

A tax levy is a physical claim of assets, properties, accounts, and wages. The IRS can claim non-primary residences, non-essential vehicles, take money out of your bank account, or make employers withhold a portion of their employee’s wages, until the tax debt is paid.

How Rush Can Help

IRS Penalties, interest payments, and collection actions can be terrifying. But you are not defenseless. By coming up with a swift and actionable plan, you can negotiate payment with the IRS. You may also be able to reduce your IRS penalties and eliminate your liability as soon as possible. Even taxpayers in difficult financial situations can work with seasoned tax professionals to seek a reduced liability or a delay in collection actions until things improve.

You always have options. Seek out Rush Tax Resolution for more information.

How to Stop Wage Garnishment: 6 Tips for Individuals

Negotiating with the IRS can be difficult, especially when you don’t know how to navigate the IRS’s ruleset. Explore these tips on how to stop wage garnishment.

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Certain debts and obligations can warrant serious collection actions from creditors, particularly for tax debts, late child support payments, and late loan payments. When you owe federal taxes, for example, the IRS goes through a step-by-step collection process to coerce payment. Wage garnishment is one of the last steps for employed taxpayers and involves ordering their employer to withhold a portion of their wages every month until the full debt – including penalties and interest – is paid off.

What is Wage Garnishment?

When the IRS garnishes your wages, it’s because you owe a significant tax debt and haven’t properly addressed the IRS’s collection actions against you. The IRS’s collection process officially begins as soon as ten days after you have been notified of your tax balance and due taxes.

Late payment penalties (and late filing penalties, should you fail to file or claim an extension) begin thereafter and continue to accumulate on a monthly basis, alongside an annual adjusted interest rate (based on the federal short-term rate, plus three percentage points for Q1 2021).

If your tax debt is high enough, then the IRS can immediately file a federal tax lien against all of your property and assets. Ignoring the lien may lead to levies, including wage levies (also known as wage garnishment).

If you act soon enough, you can stop wage garnishment and halt levy actions. The IRS will usually give you multiple warnings in the form of various notices, followed finally by a Notice of Intent to Levy. This is often your last chance to contact the IRS and negotiate a way to avoid a levy and stop wage garnishment.

Aside from levying wages, the IRS can also levy assets, properties, and bank accounts. Self-employed taxpayers, for example, might see the IRS claim and empty a bank account to satisfy the debt.

Unlike wage garnishment which occurs whenever a wage is paid, levies on assets, accounts, and properties are individual events. If the sale of a property or claiming of an account more than satisfied your tax debt, the remained is returned to you. If it was not enough, then the IRS may issue another levy on a different asset or property.

How to Stop Wage Garnishment

There are multiple ways to stop the IRS from levying or garnishing wages, but they all boil down to the same thing: tackling the debt itself. This means either

1. 1. Paying it off
  2. Coming to an agreement with the IRS, or
  3. Seeking for some form of debt forgiveness

Under specific circumstances, you can also argue that the IRS must pause all collection efforts. Let’s look at each option.

Paying Off Your Debt Entirely

The most straightforward and least attractive option is to pay off your debt any way you can. This might involve selling property or negotiating with the IRS to discharge or subordinate their tax lien in order to let you seek financing.

Both of these options effectively create an exception for one property or creditor in the case of a federal tax lien, which usually prevents you from seeking credit, as the IRS’s claim supersedes that of any creditor under a tax lien.

Creating an IRS Tax Payment Plan

You don’t have to pay off your tax debt immediately. The IRS also offers multiple payment plans to let you pay off your debt in chunks. Interest will continue to accumulate during the payment period, but at a halved rate.

If you plan to pay off the entire debt within 120 days, you can qualify for a short-term payment plan. If you need more than 120 days, then the IRS will charge you in monthly installments through a long-term payment plan. Depending on your debt, these may be easier to manage financially than your ongoing or potential wage garnishment.

The setup fees for payment plans depend on whether you opt for short- or long-term, and whether you set the plan up via the Internet, or via phone/mail/appointment. Setting up online is often the cheapest and most convenient option.

Long-term payment plans are more expensive to set up, particularly if you opt out of the IRS’s automatic payment system (the Direct Debit Installment Agreement). Taxpayers who qualify as “low-income” (less than 250 percent of the federal poverty level) may also be eligible to have their setup fees waived or reimbursed.

Initiating a payment plan with the IRS can stop wage garnishment, as well as other levies. Sticking to the payment plan for at least four consecutive payments can make you eligible for a released lien as well, provided your total remaining tax debt is below $25,000, and you haven’t missed a payment in the past.

Negotiating an Offer in Compromise

Many taxpayers have fallen on hard times this year. Some aren’t able to meet the financial requirements for a long-term payment plan, let alone pay off the entire debt within a few lump sum deposits. That’s where an offer in compromise comes into play.

An offer in compromise is a payment plan wherein you tell the IRS what you are prepared to pay, and over what period. While it sounds too good to be true, it’s important to understand that the IRS typically rejects offers in compromise, unless they meet their standards and qualifications. This is where a tax professional can become critically important – they can help you negotiate with the IRS and draft an offer in compromise that is more likely to be accepted.

To understand how the IRS evaluates offers in compromise, it’s important to understand your own reasonable collection potential. This is calculated by estimating your own expendable income (what is left after taxes and basic cost of living) over a specific period, as well as net realizable equity. The IRS will comb your financial history to determine what you can afford to pay every month, and check if it matches up with your offer.

Arguing Financial Hardship

Wage levies are designed to leave you with an acceptable minimum monthly wage, and exemptions are raised for every dependent in your household. But if the IRS’s wage garnishment is affecting you heavily, to the point that you can argue financial hardship, you can talk to a tax professional about filing for Currently Not Collectible status.

This will halt all collection efforts until your financial situation changes. Eligibility for this status is determined periodically. It does not lift tax liens and does not halt interest.

Declaring Chapter 7 Bankruptcy

Most debts can be cleared by going through the bankruptcy process – but tax debts are special. Clearing a tax debt through bankruptcy is a lengthy process, and there are eligibility requirements before the IRS will drop your debt.

However, going through bankruptcy does pause most collection actions, including stopping wage garnishment. This doesn’t mean your tax debt is gone, but it does stop the IRS from claiming a portion of your wages, or anything else.

Always Seek Professional Tax Help

Negotiating with the IRS can be difficult, especially when you don’t know how to navigate the IRS’s ruleset for tax debts and collection actions. Experienced tax professionals can help you cut the chaff and figure out your best path towards living debt free. Contact our team of professionals today to stop your wage garnishment. One crucial aspect to consider is the availability of tax debt relief options in California, which can significantly ease your financial burden. These programs may provide you with flexible payment plans or even reduce the total amount you owe. By exploring these options, you can regain control over your finances and move forward with confidence.