This guest post was provided by Ashley from TaxDebtHelp.com.
There are few things worse than knowing you owe the government a huge chunk of money and one of those things is knowing you do not have the money to pay what you owe. No one wants to be indebted to Uncle Sam because the IRS is a powerful collection agency and typically supersedes other creditors. When the tax bill comes due and you can’t afford it, you can be fined or penalized, have your assets frozen, find a lien placed on your property, or potentially have your property levied. Levies may come in the form of the IRS taking money out of your bank or taking money out of your paycheck (IRS wage garnishment).
So what do you do? The IRS is reasonable in understanding that not all taxpayers are capable of settling their debts in one lump sum but still want to do the right thing. There are resolutions that the IRS offers to help consumers catch a break and settle their debts in full.
How to Get Help with a Back Tax Bill
The first thing any taxpayer should do is realize where their current financial situation stands. They need to be clear about the reality of their finances so they will be able to better negotiate the process of getting help. The IRS has several programs that assist people who do not have the immediate resources to pay off their tax debts. If you are in a great financial place, you shouldn’t have too much trouble paying the debt in full.
If you have a decent financial situation where you can’t pay the taxes in full but do have reliable income and some cash left over after paying living expenses, you should be able to set aside cash from each check to make payments on your tax balance. Options for people who are doing OK financially include:
1. IRS Installment Agreements
A common method to help consumers pay their taxes is the installment agreement. The IRS will allow reasonable payments to be made on a monthly basis until the balance is paid in full. If you do not owe more than $25,000, you have a good chance of being approved for an installment agreement without much paperwork provided you can satisfy the debt within a 3-5 year time period.
2. Partial Payment Installment Agreement
For those who can afford some payments but who are unable to qualify for a normal installment agreement, a Partial Payment Installment Agreement may be set up. The taxpayer will be able to make monthly payments towards their tax bill, but with a PPIA part of your debt will exceed the statute of limitations on debt collection. In essence, you end up paying less than you owed. You must provide financial documents to prove your financial status and get the IRS to agree to approving this option.
3. Take a Loan
If you feel you would be successful approaching family or friends for a loan on the amount you owe, it may be an option to avoid fees and IRS paperwork to borrow the cash you need and satisfy the debt in full. Only exercise this option if you are comfortable dealing with family and money and be sure to pay back the loan amount within a reasonable period of time.
If you have poor finances, meaning you can not pay the taxes you owe and there is nothing left after basic needs have met, you may find the IRS can offer a resolution to paying owed taxes.
4. Offer in Compromise
This option will allow a taxpayer to settle the tax amount due for a sum less than is owed. Many taxpayers hope to get approved for this option but few will because the IRS ensures only those who really need the assistance get accepted for an Offer in Compromise. If the IRS is assured they will never be able to collect the amount owed, they will likely approved the offer from the taxpayer.
5. Currently Not Collectible Status
In a situation where the IRS is sure that collection of a tax debt would be unfair due to payments resulting in the loss of basic necessities, they will declare a taxpayer’s debt to be currently not collectible. The IRS will not release the debt but will essentially offer a forgiveness for a period of time usually up to 18 months. They will check in for updates on financial status until they deem the amount collectible. The good thing is normally the statute of limitations on your debt (time the IRS has to collect) continues to tick. However, penalties and interest can still accrue.
Bankruptcy should be a last resort to resolve debt issues but it is a serious matter and should not be used just because you can’t afford to pay taxes. Bankruptcy will negatively affect credit for ten years to come, and it may be in a taxpayer’s best interest to seek the assistance of the IRS for better options on settling a back tax debt. Additionally, bankruptcy is never a guarantee. In the end, a taxpayer may not even be approved for a tax debt dismissal.
Whatever method works for both the taxpayer and the IRS should be considered and action needs to be taken to resolve the matter of an outstanding debt. Avoiding the situation will only make the debt larger and the legal consequences more severe.
This guest post was provided by Ashley from TaxDebtHelp.com. If you are looking for more self-help details on IRS tax debt payment plans, or if you are looking for ways to resolve IRS tax levies like IRS Wage Garnishment, visit their site today.
Can my social security payments be garnished to pay off a large IRS tax bill?
Thanks for your question, Joan. Yes, the IRS can “levy” (that’s what they call it) your Social Security benefit payments with a few exceptions. There is no minimum amount of benefits you must receive first either. Read more here: http://www.irs.gov/individuals/article/0,,id=100539,00.html. However, you can always apply for the Currently Not Collectible status if the levy would cause severe financial problems.
Thank you for the post! I just wanted to add that the IRS has recently reviewed its Offer in Compromise requirements, which made it easier to get it accepted. Hopefully more people will benefit from it now.