Sometimes life gets in the way of filing your taxes or paying the IRS — you get busy, and all of a sudden, you missed an important tax deadline.
No need to panic. While it's crucial to file your individual income taxes every year and to not let your unpaid taxes pile up, there are ways you can deal with back taxes.
To be clear: The easiest way to handle the problem is to file your back taxes and pay them in full with the IRS. But if that's not possible given your financial situation, this guide may help you navigate your options.
What are back taxes?
The phrase "back taxes" is usually associated with past-due tax returns that weren't filed on time and tax debt owed to the IRS. Back taxes include fully and partially unpaid tax bills for a particular year.
Note that this article focuses on federal individual income taxes, not business or state taxes, which may have different rules and regulations.
How many years can you file back taxes?
Typically, you're allowed to file a tax return for any previous year. But there is an element of timeliness. If you have a past-due tax return and you suspect the IRS owes you — meaning you anticipate getting a tax refund — you'll need to file within three years of that return's due date in order to claim the money. Ditto for tax credits.
For example, say you never filed your 2021 tax return. For most people, the deadline to submit an individual income tax return was April 18, 2022 (April 19 in Maine and Massachusetts). If you're expecting to get a tax refund, you need to file your 2021 return before the three-year timer is up: by April 18, 2025.
FYI, there's no IRS statute of limitations for assessing and collecting taxes owed if you never voluntarily filed the return (or if you filed a fraudulent tax return).
What happens if I don’t pay my back taxes?
As the IRS once put it in a news release, "filing tax returns and paying the correct amount of tax is good citizenship." Not doing those things? Well, it says that "can jeopardize a family’s financial security and future."
Specifically, by not filing taxes, you can imperil your broader financial situation. You risk losing your tax refund. You may find yourself missing out on Social Security credits or unable to get a loan. Or the IRS may take action and file a substitute tax return for you, and you can bet they won't be as nice as TurboTax: The agency may not take all of your desired deductions and exemptions.
If you don't submit and pay back taxes, you may also incur a Failure to File penalty and/or a Failure to Pay penalty. You could face a federal tax lien, which happens when the government establishes its legal right to your property, or an IRS levy, which is when the government takes that property (by, say, garnishing your wages or seizing your car). Missing several tax returns and dodging the bills could come with more severe consequences, as well, like (in rare cases) criminal prosecution.
What happens if you owe the IRS
In addition to the consequences outlined above, you may have to pay penalties and interest in connection with your back taxes.
If you owe the IRS and don't file your taxes on time, you may face a Failure to File penalty. The IRS calculates how late your tax return was and what your tax bill was on the original deadline, then charges you 5% of those unpaid taxes for each month or partial month that your return goes unsubmitted (up to 25%).
You could also have to pony up for the Failure to Pay penalty, which is based on how long you go before finally paying overdue taxes. If you failed to pay the amount shown on your tax return, the IRS charges 0.5% of your tax bill for each month or partial month your tax liability goes unpaid, up to 25%. (If you failed to pay taxes based on income you chose not to report on your return, it's a different story.)
If you're dealing with both a Failure to File and a Failure to Pay penalty, the former is reduced by the latter. If you do file on time and get started with a payment plan, the Failure to Pay goes down to 0.25% per month. And, yes, interest accrues all the while.
The IRS will consider lowering or even removing fines if you're able to provide a good explanation for why you missed the filing and payment dates. The agency rules on these so-called reasonable causes on a case-by-case basis, but they can include natural disasters, death of the taxpayer or technology issues. (Alas, excuses like "I didn't know how to file" and "I didn't have enough money to pay my taxes" typically don't count.)
What happens if the IRS owes you
It's a different story if Uncle Sam's on the hook than the other way around. The IRS offers a lot more flexibility in these situations.
If the IRS owes you money due to your withholding, estimated taxes or refundable tax credits and you don't file a tax return, there's no penalty. But here's the kicker: You can't get your tax refund without filing, and this has a time limit. The IRS will only cut you that check if you file within three years of a tax return's due date.
Do taxes go away after 10 years?
Technically, the IRS has 10 years from the date your tax was assessed to collect that tax and any related penalties. Assessing taxes is the act of officially calculating and recording a tax debt.
The agency is generally supposed to assess that tax within three years of your tax return due date or within three years of you actually filing that return — whichever is latest. But there are nuances to that rule. For instance, if you neglected to voluntarily file a tax return and the IRS had to submit what's called a Substitute of Return for you, it can calculate your taxes whenever it wants (though if you then do file your tax return, it starts the three-year clock). If you didn't report all your income on your return, the IRS gets an extra three years (six in total) for assessment.
Most crucially, if you intentionally filed a fake return so as to avoid taxes, there is no statute of limitations — the IRS can assess your taxes at any time.
How to pay back taxes
You can file your past-due tax return just like you would file an on-time return, though you'll need to use the documents for the appropriate year. (For instance, you can't use a 2023 Form 1040 or a 2023 W-2 for your 2020 taxes.) If you can't find the wage or income information you need from past years to fill out those forms, request a tax transcript by filing Form 4506-T.
Some tax prep softwares limit the years for which they offer online services. They also might not offer electronic filing for these; you may have to print out and mail in your past-due tax return.
If you need help filing a past-due return, call the IRS at 800-829-3676.
To actually pay back taxes online, go to the IRS website and select "Pay Now," which you can do using a checking account, savings account, debit card, credit card or digital wallet. Electronic payment is preferable, but you can also pay your taxes by mail or money order using the IRS address that corresponds to your location.
IRS payment plans
You can also request a payment plan, which stops the IRS from levying and gives you the ability to pay the IRS over time.
Taxpayers who can pay within 180 days can apply for short-term payment plans online if their tax liability, penalties and interest add up to $100,000 or less in total. Taxpayers who require an installment agreement, or long-term payment plan, can apply online at IRS.gov if their tax returns are up to date and they owe $50,000 or less.
Payments and monthly installments can generally be made directly from a bank account; using a check, money order, credit card or debit card; or online or over the phone through the Electronic Federal Tax Payment System.
There are setup fees for certain IRS payment plans, though you may qualify to have these charges waived depending on your financial situation (specifically, if you're considered a low-income taxpayer). Also note that penalties and interest do accrue until the tax debt is paid in full.
Offer in compromise
If you're not able to pay all your back taxes or doing so would cause you financial hardship — and you meet a certain set of requirements — the IRS may extend what's called an offer in compromise. Offers in compromise (or OIC) are where a taxpayer settles their debt for an amount less than is owed. With an OIC, you can choose a lump sum cash offer or periodic payment offer.
The agency will evaluate your income, expenses, assets and ability to pay before approving (or denying) your offer in compromise application. Be careful not to lowball: OICs are most likely to get approved "when the amount you offer represents the most we can expect to collect within a reasonable period of time," according to the IRS.
Generally, the lump sum and/or installment payments are in addition to the OIC application fee, though you may qualify for a low-income exception depending on your financial situation.
The IRS may also grant an OIC if there's what's called "doubt as to liability," where there's legitimate uncertainty as to whether what you owe on paper is correct. In doubt as to liability cases, there's
also no application fee.
To apply for OIC, use the Form 656 Booklet.
Currently not collectible
If the IRS decides you truly can't afford to pay your tax debt right now, it can label your bill "currently not collectible," or CNC. To have your account reported CNC, you'll likely need to send in proof of your financial situation.
Remember: Currently not collectible status doesn't wipe your debt, it just delays the collection of that debt. And during that delay, your debt, interest and penalties will still accrue.
What is tax debt relief?
Tax relief is a notoriously sketchy industry. Many tax relief companies say they'll be able to stop collections, reduce your back taxes and settle your tax debt — in exchange for a hefty fee. Often, these promises are false and overly expensive.
Before you opt for a tax relief company, the Federal Trade Commission recommends attempting to communicate directly with the IRS. Carefully read any IRS letters and ask about alternative repayment options.
If you find yourself having trouble reaching the IRS, or you're encountering a problem getting help with its system, or you're experiencing economic hardship, you can always contact the free Taxpayer Advocate Service for assistance. You may also qualify for a Low Income Taxpayer Clinic.
How tax relief companies work
Tax relief is rife with fraudsters and businesses looking to make a quick buck. But that's not to say there aren't a few legit options.
Sometimes it can help to have a tax relief company take a look at your case and advise you on next steps with the IRS. An experienced tax pro may be able to help you apply for offers in compromise, CNC status or IRS payment plans. They'll often negotiate with the IRS on your behalf, eliminating time and stress.
While these tax relief companies may be experts in paperwork and tax regulations, it's important to note that you can (and probably should) first try to negotiate with the IRS directly.
If you do choose to use a tax relief business, the FTC advises you avoid paying upfront. Ask for details about how the business intends to bill you, whether it charges maintenance fees and what its refund policy is. Be careful, and report any bad actors at ReportFraud.ftc.gov.