IRS Tax Debt In The United States

The Prevalence Of IRS Tax Debt For Americans

The issue of IRS tax debt for Americans has escalated in recent years, particularly due to the COVID-19 pandemic. Many individuals experienced job losses and financial instability, leading to non-payment of taxes. Businesses also faced challenges, contributing to a multi-million-dollar problem for the IRS and the country. The IRS has hired numerous new employees to address the issue, but inadequate training has sometimes exacerbated the problem.

Factors Behind The IRS’s Struggles

There are two main reasons for the IRS’s current challenges:

1. Pre-pandemic directives: Even before COVID-19, the government and the president instructed the IRS to hire more agents and address tax issues more efficiently.
2. COVID-19 closures: The IRS closed its offices for seven months in 2020, leading to the resignation of many experienced agents and revenue officers. Upon reopening, the IRS faced a backlog of mail and a reduced workforce. Consequently, new hires received minimal training, resulting in less effective tax issue resolutions.

Common Tax Issues For Individuals

Individuals commonly face the following tax issues:

• Unfiled returns: Many people neglect to file their tax returns on time.
• Underreported income: Individuals often fail to report all their income, especially when they do not receive a 1099 form.
• Inability to pay: Taxpayers frequently struggle to pay their taxes when they are due, including estimated tax payments.

Remember, it is your responsibility to report all income, regardless of whether you receive a W2 or a 1099 form.

Reasons For Non-Payment Of Estimated Taxes

There are several reasons why people might not pay their estimated taxes:

1. Lack of knowledge: Taxpayers may not be aware of their obligation to pay estimated taxes, often due to a lack of information from their tax preparer.
2. Misallocation of funds: Some individuals may spend their money on other needs or wants instead of setting it aside for estimated taxes.
3. Changes in income: An increase in income from the previous year might lead to owing estimated taxes, but taxpayers may not realize this if they were not required to pay them the previous year.

Estimated taxes are calculated based on the total tax from the prior year. You should divide 90% of that total tax into four equal installments, which are due on April 15th, June 15th, September 15th, and January 15th of the following year.

The Consequences Of Missing Quarterly Estimated Payments

Missing one or two quarterly estimated payments is a significant issue for several reasons:

1. Large tax bills: You may owe a considerable amount of money on Tax Day (April 15th) that you might struggle to pay.
2. Underpayment penalties: Failing to pay estimated taxes throughout the year may result in an under-withholding penalty, which means you will have to pay extra fees for not meeting your estimated tax obligations.

Filing Taxes Despite Missed Estimated Payments

If you have missed all the required estimated tax payments for an entire year, it is crucial to file your taxes. There are two separate penalties: one for not paying your tax and another for failing to file. A late filing penalty can reach up to 25% of the tax due. Therefore, it is essential to file even if you haven’t made your estimated payments or cannot pay your taxes when due.

Filing Taxes Versus Not Filing At All

It is better to file your taxes even if you owe money, as not filing will result in non-filing and late filing penalties. If you cannot pay your taxes, there are options available, such as installment agreements or seeking other assistance.

Filing Taxes After Missing Multiple Years

If you have not filed taxes for several years, the appropriate course of action depends on the number of years missed:

• One missed year: File the overdue return, then contact a tax attorney to help coordinate between the past and current years.
• Several missed years: Consult a tax attorney who can advise you on how many returns you need to file.

Typically, the IRS expects the current year’s return and returns for the past six years. For example, if you haven’t filed since 2010, you would need to file returns for 2016 through 2022. In most cases, the IRS is satisfied with the past seven returns. However, if a revenue officer requests an older return, you can file it as needed.

For more information on the Problem Of IRS Tax Debt In The United States, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (864) 271-7940 today.