Tax Problems

Back Taxes

Back taxes are taxes that still have a balance due, or are only partially paid after you file your tax return. If you owe back taxes, the IRS will send a notice with the amount owed, a due date, and the consequences of not paying — and interest accumulates every day you wait.

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Key Insights

Back taxes accrue interest and penalties from the original due date, growing your balance over time

You can owe back taxes at the federal, state, or local level — and for both personal and business tax liability

The IRS Fresh Start Program offers four main relief options for taxpayers who cannot pay in full

The IRS uses a computerized Information Returns Program (IRP) to detect unfiled or underpaid returns

Ignoring back taxes leads to escalating collection actions — liens, levies, and wage garnishments

What Are Back Taxes?

Back taxes, also called tax debt, are taxes owed to the IRS (or a state or local government) that were not paid by the original due date. Even if you have not received a notice from the IRS, your back taxes will gain interest over time — and you could end up paying a hefty fee on top of the amount you already owe. In our economic climate, owing the IRS back taxes is not uncommon, but ignoring your overdue tax liability can have severe consequences.

What to Do if You Owe Back Taxes

If You Can Afford to Pay in Full

Sometimes repayment is as simple as sending a check or paying online through the IRS secure payment portal. If you can pay in full, doing so immediately stops interest and penalties from growing and removes the risk of IRS collection actions.

If You Cannot Pay in Full

The IRS appreciates your efforts to pay taxes, even if they are past due. One viable option is to apply for an IRS back tax relief program through the Fresh Start Program. The qualifications can be difficult to navigate without the help of a professional tax representative who can negotiate with the IRS on your behalf.

IRS Fresh Start Programs

Four main programs available to taxpayers who cannot pay in full

Installment Agreement

An IRS payment plan that allows taxpayers to pay an agreed-upon amount every month. Payments go directly toward your overall tax debt until it is paid in full. The IRS cannot send letters or impose penalties against you while on an installment plan, though interest continues to accrue.

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Offer in Compromise (OIC)

Allows taxpayers who owe back taxes to resolve their debt for less than the full amount. The best option available through the Fresh Start Program — with many people saving 95% or more — but the qualifications are strict. Typically only offered to taxpayers who do not have the financial resources to pay in full.

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Currently Not Collectible Status

A taxpayer can request CNC status if they cannot pay their back taxes at the present moment. While this status does not remove tax debt, it stops all collection activities — including bank levies, wage garnishments, tax liens, and threatening letters — for the agreed-upon time period.

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Penalty Abatement

Allows a taxpayer to have a tax penalty reduced or completely wiped out. The IRS will only apply Penalty Abatement if the taxpayer can claim reasonable cause, and will request sufficient evidence to prove this cause. Proper documentation is the best form of evidence.

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Should You Hire a Tax Professional?

Sometimes resolving tax debt is as easy as writing a check — but sometimes it is far more complicated. Key advantages of working with a tax professional include:

Tax professionals know the IRS's criteria and can identify the best resolution strategy for your situation

The IRS prefers to work with authorized representatives, which often leads to more favorable outcomes

A professional handles nearly all of the resolution workload — you only need to provide documentation

Reduces the risk of errors, missed deadlines, or being talked into a less-than-ideal resolution

If you have a relatively low tax bill — $5,000 or less — and all your documents are in order, you may be able to seek an installment agreement on your own. However, for significant tax debt or complex situations, professional representation is strongly recommended.

How Does the IRS Know You Owe Back Taxes?

The IRS uses a computerized Information Returns Program (IRP), which matches information documents against the tax returns you have filed. Should their computer search fail to find a return, the IRS will begin a Taxpayer Delinquency Investigation (TDI). The IRS will ultimately find out if you owe back taxes and begin issuing notices like LT38 and CP14. The longer you wait, the larger your tax debt will grow.

Owing Back State Taxes

Owing back taxes to a state government is more complicated than owing to the federal government. Forty-three states have a state income tax, and state income tax codes differ between states as well as from federal tax laws. Taxpayers commonly end up in state tax debt because they do not have enough withholdings or deductions, or because they earn income in multiple states and forget to file several returns.

Frequently Asked Questions

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