How do I know if I have tax debt?
Nobody likes the thought of owing money to the government, but Internal Revenue Service (IRS) tax debt can sneak up on you quickly — and this type of debt is more common than you might think. Each year, millions of Americans find themselves owing money to the IRS, and there can be a few different causes for it. In some cases, you may have filed your taxes but couldn't pay the full amount owed. In others, you may have missed filing altogether for a year or two. Or, the IRS may have reviewed your return and determined you owe more than you calculated.
Whatever the driving force may be, tax debt isn't something you should ignore, as it only grows with penalties and interest over time. The tricky part, however, is that some people don't even realize they have tax debt until they get an unexpected notice in the mail. If you moved after filing your taxes or filed incorrectly and didn't catch the mistake, for example, it may not be obvious that you owe money to the IRS — not until the agency takes action, anyway.
If you're unsure whether you have outstanding tax debt, it's important to find out whether that's the case, as ignoring the issue will only make it worse. Below, we'll explain how to find out if you owe taxes and what you can do to resolve the issue.
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How do I know if I have tax debt?
The most straightforward way to know if you have tax debt is to receive a bill or notice from the IRS. The IRS typically sends a series of increasingly urgent notices when you owe money. These start with a simple tax bill and can escalate to notices with titles like "Intent to Levy" if the debt remains unpaid. If you haven't received notices but suspect you might have tax debt, you can check your tax status in the following ways:
- Contact the IRS directly: Call the IRS or visit a local IRS office. The agency can tell you if you have outstanding tax liabilities and how much you owe.
- Request an account transcript: You can request an account transcript online through the IRS website, by mail using Form 4506-T or through the IRS2Go mobile app. This transcript shows your tax account activity, including payments, penalties and interest.
- Check online: If you've set up an online account at IRS.gov (or take steps to do so), you can log in to view your current balance, payment history and any amounts owed. Most state tax agencies have similar online portals for checking state-related tax debt.
- Check with a tax professional: A tax preparer or accountant can help review your tax history and determine if you have outstanding debts. They can also advise on the next steps to take if you owe money.
- Review your tax returns: If you suspect a miscalculation or an error in a past return, review your tax documents to ensure everything was reported correctly. If you filed incorrectly, you may owe additional taxes.
Remember that tax debt can include not just the original tax amount but also penalties and interest, which continue to accrue until the debt is paid in full. The IRS typically applies penalties for late filing (5% per month up to 25% of the tax owed) and late payments (0.5% per month up to 25%) plus interest on the unpaid balance.
Find out what options you have for getting rid of your tax debt.
What options do I have if I can't afford my tax debt?
Finding out you owe back taxes can be stressful, especially if you're already struggling financially. Luckily, there are options available to help you manage your tax debt, including:
- A payment plan: The IRS (and most state tax agencies) offers installment agreements that allow you to pay your debt over time. This can make a large bill more manageable.
- An Offer in Compromise: If you truly can't afford to pay the full amount, you may be eligible to settle your tax debt for less. The IRS reviews your income, expenses and assets to determine if you qualify.
- Currently Not Collectible status: If you're facing serious financial hardship, the IRS may temporarily halt collection efforts. This doesn't erase your debt, but it prevents aggressive collection actions while you get back on your feet.
- A personal loan or credit card: While taking on new debt isn't ideal, using a low-rate loan or credit card may be a better option than accruing high IRS penalties and interest.
- Professional help: Tax relief companies and certified tax professionals can negotiate with the IRS on your behalf and help you find the best resolution.
The bottom line
Tax debt isn't something you can afford to ignore. If you think you might owe back taxes, take action now to check your status and explore your options. Whether it's setting up a payment plan, negotiating a settlement or seeking professional advice, there are ways to resolve your debt before it spirals out of control. The sooner you address the issue, the better your financial future will be.
