The consequences of unpaid taxes vary based on how much you owe. If you owe over $50,000, for example, the IRS will engage in much more severe collection actions than if you owe a lower amount. If you only owe a few thousand dollars, in contrast, the situation will be much different.
Wondering how your level of tax debt is going to affect you? Want to know your options? To help you out, we explain what you need to know if you owe between $10,000 and $49,999 in unpaid federal taxes. Want help now? Then, don’t wait. Contact us at the W Tax Group today.
Consequences When You Owe IRS Over $10,000
A lot of people call us and say, “I owe 10K in taxes, what should I do?” Or even more frequently, they say, “I owe over $10,000 in taxes” or “I owe $15,000 in taxes.” When you owe the IRS over $10,000, it can be scary. You know the agency has a lot of power, but what are they going to do to you?
Here’s the bad news — when you owe the IRS over $10,000, the situation is getting serious. The IRS takes tax debt over this threshold a lot more seriously than it does when you owe less than $10,000. Typically, at the $10,000 threshold, the IRS starts issuing tax liens. They attach to your property and make it very hard to borrow money or sell your assets.
For instance, if you have a tax lien against you, you may not be able to sell your home or vehicle. If you do, the IRS will take their cut of the money before you get anything.
Additionally, tax liens are often the precursor to tax levies. A tax levy is when the IRS seizes your assets. Most commonly, the agency garnishes your wages or seizes the money in your bank account. But sometimes, the IRS can also seize your personal or real property or even your home.
Can I Get a Tax Refund If I Owe IRS Over $10,000?
In addition to the above consequences, you will also lose your tax refund. The IRS can seize your tax refund to cover unpaid tax debts from previous years. This happens through the Treasury Offset Program. This program also requires your state to send state refunds to the IRS if you have unpaid taxes.
This doesn’t just apply to people who owe 10K or more in taxes. It applies to anyone who owes any amount of unpaid state or local taxes.
What If I Owe 20K in Taxes?
If you owe 10K in taxes, the situation is similar to if you owe $10,000. For the most part, all tax debts that fall into the $10,000 to $49,999 range face the same consequences. As a result, when someone calls our office and says, “I owe $20,000 in taxes” or “I owe $25,000 in taxes” or even “I owe the IRS $30,000”, our answers about the potential consequences are about the same.
However, the resolution options vary based on your situation. For instance, imagine that you call us and say “I owe $15,000 in taxes but it’s all due to business income that my ex-spouse was hiding from me.” In that case, we’ll probably talk with you about the innocent spouse relief program. Now, imagine that you call us and say “I owe the IRS $30,000 but I don’t have any money to pay. I’m unemployed with no savings.” In that case, we might direct you to look at the offer-in-compromise program or currently-not-collectible status.
In other words, the consequences are similar when you owe a tax debt in this range, and some of the resolution options are also very similar. But the right resolution option will vary based on your situation. One of the most common options for people who owe over $10,000 but less than $50,000 is a payment plan. We outline that in the following sections.
Payment Plans When You Owe Between $10,000 and $49,000
The IRS is often willing to let you make payments on your tax debt. However, the application process and options vary based on how much you owe. Here is an overview of the options for people who owe more than $10,000 and less than $50,000.
120-or-Less Payment Plan
If you can afford to pay off your tax liability in 120 days or less, you don’t need to apply for a payment plan. You can go online and set up a short-term payment plan. Typically, as long as you can meet that 120-day deadline, it doesn’t matter how much you owe.
For instance, say that you call us and say, “I owe $12,000 in taxes, but I can pay it off in full in two months. Then, we’ll probably direct you toward this option.
Guaranteed Installment Agreement
If you owe exactly $10,000 or less, you can qualify for a guaranteed installment agreement. Guaranteed means that you don’t have to jump through any hoops to apply. Your payment plan will be automatically accepted if the following statements are true:
- You cannot afford to pay your tax debt in full right now.
- You and your spouse have filed all returns on time for the last five years.
- You and your spouse haven’t entered into an installment agreement for unpaid taxes in the last five years.
- You can pay off the full amount of your tax debt in three years or less.
- You agree to stay compliant with tax laws during the term of the installment agreement.
Luckily, this isn’t the only option because a lot of people don’t qualify. To give you an example, imagine that you call and say “I owe 10K in taxes, but I need five years to pay them off.” You don’t qualify for this plan because you can’t satisfy the liability in three years, but you’re probably going to qualify for the streamlined payment agreement.
Now, let’s say that you can pay it off in three years, but when you contact us you say, “I owe $17,000.” In this case, you qualify based on the repayment timeline, but you owe too much for a guaranteed agreement. Again, we would probably recommend a streamlined agreement.
Keep in mind that these are just basic examples. There are lots of options. For instance, if someone owes $12,000 to the IRS and a lot of it is penalties, we might be able to apply for penalty abatement. Then, if we get your balance at or below the $10,000 line, we might be able to move forward with a guaranteed installment plan or anything option that works better for your situation.
Streamlined Installment Agreement
If you owe less than $50,000, you can set up a streamlined installment agreement. A streamlined agreement means that the IRS will accept your payment plan request without requiring you to submit any financial details. You simply request to make monthly payments and as long as you meet the criteria such as being compliant with payment and filing obligations for the last five years, you are approved.
You can also apply for the installment agreement online if you owe less than $50.000. In contrast, if you owe over $50,000, you must apply on paper using Form 9465 (Installment Agreement Request). Additionally, when you owe over $50,000, you have to provide detailed financial information or the IRS won’t approve your request for a payment plan.
Making Payments on Your Installment Agreement
The amount you owe in back taxes also dictates how you must make your installment agreement payments. If you owe less than $25,000, you can just mail in your monthly payments or make them online before the due date.
However, if you owe between $25,000 and $50,000, you must set up a direct debit from your checking account. If you don’t have a bank account, you can ask your employer to withhold the payments from your check. If you take this option, you give the IRS consent to contact your employer. Then, when they write you a paycheck, they take out your payment and send it to the IRS. Your employer may be able to charge you processing fees for this option.
Alternatively, if you don’t want to take either of these routes, you will need to provide the IRS with financial information. The financial disclosures that the IRS requires are long and detailed. In most cases, it’s much easier to just agree to set up a direct debit from your account than it is to take this option.
Get Help When You Owe the IRS Between $10,000 and $49,999
This is the level of tax debt where the IRS starts to get very serious, and the agency has more collection power than almost any other entity. If you want to protect your money and your assets, you need to make arrangements to pay your tax debt before the IRS goes after you. Ready to get help now? Then, contact us today. We can help you get the best resolution possible for your tax debt.