If you are a taxpayer who owes back taxes, then you might have wondered at some point how much you owe the IRS or even the State for these back taxes. Some find out how much they owe when they receive notices from the IRS for the unpaid debt. But of course, we don’t want to wait until that happens.
See our video explanation below, then keep reading for more information:
Knowing how much you owe the IRS
There are several ways that you can find out how much you owe the IRS. You may find out via mail, phone call, or checking online. We will explain these options further and how to do each one.
Find out how much you owe the IRS using the online tool
The IRS offers an online tool to help you figure out how much tax you owe. The tool shows the balance for each tax year including the principal amount and any penalties or interest. It also shows payments you’ve made in the last 18 months and your payoff amount.
One of the reasons why the IRS online tool is handy because the updated information it provides. This is probably the most convenient way to get access to information on your tax dues. To use this service, you need to have an account on the IRS website. Make sure that you have the following information ready when signing up:
- Social security number
- Date of birth you need your
- Filing status (single, married filing jointly, etc.)
- Mailing address from your last tax return.
- E-mail address
- Mobile phone with your name on the account.
- Account number from a mortgage or home equity loan, a car loan, or a credit card—that also needs to be in your name
The great thing about the online tool is that it updates interest and penalties every 24 hours which makes the data reliable. You can also view or print transcripts here. If you would like to request the transcript to be mailed to you, it would take five to ten days. Payments made usually take one to three weeks to post.
The tool is available during the following days and times:
- Monday to Friday: 6 a.m. to 12:30 a.m. ET
- Saturday: 6 a.m. to 10 p.m. ET
- Sunday: 6 p.m. to 12:00 a.m. ET
Here’s where to find the IRS online tool. If you are unsure which years you owe order back as far as the system allows. Sometimes a mail-in request as mentioned below is required for records older than 10 years.
Find out how much you owe the IRS by calling them directly
You can also call the IRS directly to inquire how much you owe. Individual taxpayers may call 1-800-829-1040. Lines are open from Monday through Friday, 7 a.m. to 7 p.m. For taxpayers representing business make call 1-800-829-1240, at also the same given days and time. Remember that it might take some time in the queue before you can speak with someone.
Find out how much you owe the IRS by checking previously mailed notices
If you have already received a notice from the IRS, you can check your balance from the notice that they mailed to you. This is our least recommended method if you owe several years because you might miss a notice since they send a lot. The notice should state the amount due plus interest and penalties that apply. You should also take note that the notice the IRS mails out only covers one year of taxes owed. So if you owe a couple of years, then you should add the amounts indicated per notice they mailed out to you. If you think that the IRS missed mailing you a notice for a tax year or two, then it’s best if you make sure how much you owe the IRS by calling them. You can call the number that they included in the notice.
Use mail and IRS Form 4506-T to get your balance dues
The IRS website also shows other ways in finding out how much you owe depending on your situation.
If you’re a business or an individual who filed a form other than 1040, you can obtain a transcript by submitting Form 4506-T Request for Transcript of Tax Return. Check the Record of Account box. This contains both a copy of the tax return and all balance due information. Form 4506-T only allows you to request four records at a time.
Technically just ordering an Account Transcript will have balance dues, but the Record of Account is a more complete look at your account.
Now that I know how much I owe, how do I pay?
The next step after finding how much you owe to the IRS is to make a payment. In some cases though, It might be difficult to pay the amount needed probably because the accumulated amount is too high, or maybe for reasons. In this case, there are also several options to settle your tax debt if you find it difficult to pay the IRS with the amount they’re asking from you. We do recommend consulting with a tax attorney before making any of the below decisions unless you can already pay it off easily.
Ask for an Installment Agreement with the IRS
The payment plan allows you to make monthly installment payments to the IRS until the debt is fully satisfied. The terms of the payment plan will depend on your financial situation. The amount you owe will also be taken to consideration. The IRS requires taxpayers to provide financial information before they approve the payment plan if they owe more than $50,000. If you owe $50,000 or less, you are qualified for an installment agreement without needing to provide financial information. The maximum period for a payment plan or installment agreement is 72 months.
Take note that in order for you to qualify for an installment agreement, you should also be current on tax returns. If you’re self-employed, you must be current on your quarterly estimated tax payments for the current year. And if you have employees, you must be current on payroll tax deposits and Form 941 filings to get a payment plan. See our guide on IRS Payment Plans for more info.
Submit an Offer In Compromise and have it approved
Getting an Offer In Compromise lets you settle your tax debt for less than the original amount owed. In some cases, $100,000 can be settled for as low as $1,000 or even $100 depending on your case. Although an OIC may not be the best option for everyone, it is the best solution in settling your tax debt especially if you are struggling financially. Those who have low income and no assets are the ones who usually get their OIC approved.
To start, you need to fill out IRS Form 656 and IRS Form 433-A(OIC). For those who have a corporation, partnership, or LLC, you also need to fill out IRS Form 433-B(OIC).
To know more about filing for an Offer In Compromise, read our detailed guide on preparation and submission.
Be placed in a Currently Not Collectible Status
Being placed in Currently Not Collectible Status means that the IRS will be temporarily stopping any collection action against you. This is another category of hardship apart from the OIC. If you are CNC, you won’t be paying anything, but this isn’t always forever. Once the IRS determines there was an improvement in your financial capacity, then they can start collecting from you again. If you keep making the same amount of money per year or close to it, it’s possible the IRS will keep renewing your status and the debts might just stay that way until they expire.
If you have tax debts expiring soon, CNC is sometimes a better option than Offer In Compromise. See our post on Offer In Compromise vs Currently Not Collectible status and give us a call to make sure you are taking the right action.
File Bankruptcy and include your tax debts
Personal income taxes debts need to be from returns that are filed by the taxpayer (not IRS Substitute For Returns) and on file for 3 years. Payroll tax and sales tax do not get discharged in bankruptcy. See Nolo’s guide on discharging taxes in bankruptcy for more information.
If most of your debt is tax debt, bankruptcy is not typically the best option. Most people that qualify for bankruptcy qualify for an Offer In Compromise. The Offer is better on your credit and in many cases tax liens can get completely withdrawn like they never existed, while bankruptcy will be on your record for some time.
If you have a ton of other debts close to or larger than the tax debts, bankruptcy might be the best option. See our guide on Offer In Compromise vs Bankruptcy for more information.
Pay the tax debt in full
Got funds to pay it off? Often that is the best way to go. When you have too much money, have too many assets, or make too much on a monthly basis, you likely will not qualify for an Offer In Compromise. The IRS will give you a 60-120 extension to full pay by just calling and asking. You only get one of these so uses it wisely. They generally give 60 days to cases in collections and 120 days to cases not yet in collections.
Make sure to request a first-time penalty abatement if you qualify.
What happens if I don’t pay the IRS or submit a resolution
Nobody wants to be on the bad side of the IRS. The consequences of not paying the debt owed or proceeding with a resolution with the IRS can be among the following:
Taxes and Penalties
Well, if you don’t pay taxes on time, they will assess penalties and interest for late payment. This is problematic because accumulated interests and penalties will just make you pay even more. If you get an Offer In Compromise accepted, a bankruptcy to dissolve the taxes or your taxes expire those extra penalties and interest probably won’t matter.
The IRS places a lien and levies on your property
What most taxpayers who don’t settle their taxes fear is when the IRS levies their property. An IRS levy can be applied to your assets such as bank accounts, houses, and cars. The IRS will also lien on your house at some point if you do not resolve it. And contrary to most think, the IRS does not immediately levy your property or assets right after you receive a notice from them. It usually takes a bunch of notices to be sent out before they actually start taking something from you. Read our post on the different kinds of IRS demand letters to learn more about them.
Wage garnishment
Another thing that the IRS can do is garnish your wages. A wage garnishment is a court order that gives the IRS the right to withhold your income. They send it to your employer as a notice that you owe money and your employer must withhold up to 25% of your disposable income. The disposable income is your gross income after federal income tax, social security, state income tax, and State disability have been deducted, but before 401(k) contributions, health benefit deductions court-ordered assignments for support, and voluntary deductions are taken out.
Damage to your credit report
Having unsettled tax debts with the IRS can damage your credit report since a lien under your name would be shown in public records. This will hinder you from getting loans, applying for mortgages, or anything that will require you to seek financing from lenders.
To summarize…
Dealing with debt is not easy. That’s why it is recommended to pay your taxes on time to avoid any frustrations these tax debts might bring in the future. If you know you have unpaid taxes, you can find out how much you owe the IRS with different methods. The IRS online tool is already a convenient way of getting the information you need on back taxes. There are also different payment options available and tax debt settlement options if you think what you owe is something you can’t payback.
If you find yourself in situations where you think you need help in resolving your tax debts, visit our Contact Page or call us at (888) 515-4829.
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