According to U.S. Internal Revenue Service data, over 14 million Americans owed over $131 billion in back taxes, penalties, and interest in 2018.1 Despite the threat of owing thousands of dollars to the U.S. government, millions of Americans continue to fall behind on their taxes
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KEY TAKEAWAYS
Every year, working Americans are required to file income tax returns with the IRS, reporting their total income from employment but also other activities such as investments.
And, every year millions of those taxpayers are found to under-report their income or taxes owed, leading to billions of dollars in back-taxes, interest, and penalties.
Reasons could be simple mistakes, such as filing late or making errors in tax calculations, which can be avoided upon careful inspection and preparation.
Other reasons are more nefarious. Failure to report taxable income in extreme and deliberate cases can result in jail time in addition to monetary penalties.
Falling Behind
Whatever the reason, if you fall behind on your taxes for reasons other than financial hardship, you need to get your act together. The price of neglect is too high; the IRS will come after you and won’t stop until you either fight back or pay up (usually, that means both).
Here's a more "fleshed-out" list of reasons that otherwise conscientious people get behind on their taxes.
Failure to File
One of the most common mistakes a taxpayer can make is failing to file a tax return. But if you live and earn income in the United States above a minimum threshold amount during a particular year, you are required to pay taxes and report that income by filing a federal tax return.
To see if you have to file a return, the IRS uses three criteria: your age, your filing status and your income. Generally, once you reach a certain income level, the law requires you to file. The amounts are adjusted annually for inflation.
For tax year 2019 (tax year 2020 in parentheses) returns, individuals younger than age 65 must file if they make at least:
$12,200 ($12,400) as single filers.
$18,350 ($18,650) as head of household filers.
$24,400 ($24,800) as married couples filing jointly and both husband and wife are younger than 65.
The earnings threshold amounts go up a bit for older (i.e. age 65+) individuals:
$13,850 for single filers
$20,000 for head of household filers
$25,700 for married couples filing jointly where one spouse is age 65 or older
$27,000 for married couples filing jointly where both partners are 65 or older4
The earnings target is the same—$5—for married couples filing separately, regardless of age.4
Underwithholding
By law, employers typically withhold taxes from your paycheck. What you may not know is that if enough taxes are not withheld from your paycheck throughout the year, you, the employee, will likely owe the IRS when you file your tax return during tax season. The IRS calls this "underwithholding." It's usually triggered after an employee claims excessive exemptions on his or her IRS Form W-4 (completed at the time of hiring) that results in not having enough income tax withheld throughout the year.
You can file a new W-4 at any time. And if you find that you've given too much to the government, you'll get the money back when you file your income taxes.
Estimated Tax Payments
Another common form of falling behind on taxes is linked to business owners and entrepreneurs. People who are self-employed are responsible for paying their own taxes on a monthly or quarterly basis, depending on their income and estimated tax payments. Since they are self-employed, they do not have an employer to withhold taxes from their paycheck—that's usually an effective backstop for people who might otherwise forget to file their taxes. But if you're self-employed, and you fail to make your estimated tax payments throughout the year, you’ll likely incur a large tax liability at the end of the year.
There are a variety of ways to calculate your quarterly estimated tax payments. Just be sure the method you choose doesn't leave you struggling to make daily expenses or set you up with a huge tax bill and underpayment penalties.
Additional Triggers
It's not just self-employed Americans who are pressed for time—everyone is busy these days. Consequently, some other reasons people may owe the IRS are directly linked to what’s going on in their personal lives. For example, a taxpayer may have a family crisis or an emergency that occurs around tax season that prevents him or her from filing a tax return on time or from paying his or her tax bill in full. In that situation, the IRS will issue the taxpayer a bill for the amount still owed.
Other taxpayers may simply misunderstand the tax laws and take exemptions, deductions and credits that they are not qualified to claim. In this situation, the IRS will usually contact the taxpayer and inform him or her of the reporting error. The taxpayer is then required to validate the exemption, deduction, or credit taken. Without proof, the IRS will correct the taxpayer's tax return and the taxpayer may incur a hefty tax liability, penalty, and/or interest.
One easy way to correct the majority of reporting errors is to use tax reporting software or to hire an accountant. These resources will alert you to the deductions relevant to your situation, and reduce the number of data entry errors.
What the IRS Will Do
In any of the above circumstances, if the IRS thinks you owe past due taxes, they're not shy about getting a hold of you.
Usually, the IRS sends you an ominous-looking bill via snail-mail, but sometimes they might reach out to you via telephone. In serious cases, they may even attempt to visit you at work or at home. If the agency is unable to get you to voluntarily satisfy your tax debt, it may take collection action (i.e., liens, levies, garnishments, and seizures) against you. It will also tack-on penalties and interest while your debt remains outstanding.
The Bottom Line
To avoid owing the IRS, focus on being self-motivated and educate yourself on your tax reporting and payment obligations. If you are ever unsure about your tax reporting and payment obligations, get a hold of a tax attorney, CPA or professional tax preparer and, in certain circumstances, the IRS
Above all, always be alert, and always file your taxes on time, no matter what you owe.
GET TAX RELIEF HELP TODAY
If you think that you may need help filing your 2018/2019 tax return or past due tax returns, you may want to partner with a reputable tax relief company who can help you get the max refund and reduce your chances for an IRS AUDIT.
Advance Tax Relief is headquartered in Houston, TX with a branch office in Los Angeles, CA. We help many individuals just like you solve a wide variety of IRS and State tax issues, including penalty waivers, wage garnishments, bank levy, tax audit representation, back tax return preparation, small business form 941 tax issues, the IRS Fresh Start Initiative, Offer In Compromise and much more. Our Top Tax Attorneys, Accountants and Tax Experts are standing by ready to help you resolve or settle your IRS back tax problems.
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