Unpaid Taxes Frequently Asked Questions (FAQs)

unpaid taxes faqsQ: What if I can’t pay my taxes in full when they are do?

A: If you can’t pay your taxes in full you have many different options. If you want to pay your taxes back over time you can enter into an installment agreement with the IRS. If you can’t meet the requirements for an installment agreement you may be able to settle your taxes owed through an offer in compromise or you may be able to get declared uncollectible until your financial situation improves enough to allow you to pay back your taxes.

Q: What are the penalties for unpaid taxes?

A: Penalties for unpaid taxes are typically a half of a percent of the taxes owed for each month. This penalty can grow to a maximum of 25% of the total taxes owed. This penalty will increase to 1% if the tax remains unpaid 10 days after the IRS issues an intent to levy. The penalty will decrease to a quarter of a percent for any month in which an installment agreement is in effect.

Q: What interest will I be charged on unpaid or an underpayment of taxes owed?

A: Interest on unpaid taxes is determined by the federal short-term interest rate plus 3%. This interest rate is updated every three months. The typical interest charged is about 4% a year on unpaid taxes. Interest will continue to add up as long as taxes are owed. There is no maximum amount that can be charged in interest.

Q: Is the IRS going to levy my assets for having unpaid taxes?

A: The IRS can levy your assets for having unpaid taxes. It may take several months for the IRS to get to that point and it will not be a surprise if they do. The IRS will typically send a series of letter demanding payment and if all of those are ignored the last letter the IRS will send before they levy is called the Notice of Intent to Levy. This notice will give you 30 days notice prior to them beginning to levy. If taxes are not paid or settled in some other way during this time then the IRS will levy.

Q: Can I settle my unpaid taxes for less?

A: Yes you can settle unpaid taxes for less than the total amount owed. The two most common ways to do this are through an offer in compromise or a partial payment installment agreement. There are strict requirements for each and you will have to give the IRS detailed financial information about yourself in order to prove that you meet the qualifications for either of these.

Q: If I can’t pay my taxes should I still file my return?

A: YES!! Not filing a tax return has much harsher consequences than not paying. The penalty on unpaid taxes owed when no tax return is filed is 5% a month but the penalty for not paying taxes when a return is filed is only .5%, so you can see the penalties will add up much faster if you did not file a return. Not paying is not that big of a deal to the IRS as long as you are willing to work with them on a resolution. The IRS has many payment and resolution alternatives.

Q: I know I owe the IRS, but don’t know how much. How do I find out?

A: There are 3 ways to find out. You can find out by using the IRS online tool, calling the IRS, or looking at the letters the IRS has sent you about balances due.