CAN I BUY A HOUSE WHEN I OWE BACK TAXES?

If you’re looking for your dream home, it can get complicated if you owe back taxes to the IRS. While it’s still possible to get approved for a mortgage with a federal tax debt hanging over you, you immediately become a riskier borrower because of it.

In order to be approved by a home lender, you’ll need to take certain steps to prove that you’re in good standing with your tax debt and show that you’re not in serious danger of defaulting on your home loan payments.

If you owe back taxes but you’re in the market for a new home, keep reading to learn how to navigate this issue so you can increase your odds for home loan approval while paying down your tax debt.

NEED HELP WITH OFFER IN COMPROMISE, TAX SETTLEMENTS, TAX PREPARATION, AUDIT REPRESENTATION OR STOP WAGE GARNISHMENTS?

ADVANCE TAX RELIEF LLC

Call (713)300-3965

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Many mortgage lenders can work around serious credit issues like judgements, charge offs, collections, and bankruptcies. But a tax debt is slightly different. The IRS has broad authority to collect what’s owed, so when you owe Uncle Sam, a tax lien or tax levy can be issued to satisfy your debt. The issue for mortgage lenders is that the IRS can issue a lien or levy against your property. In turn, the lender will be cut out of any possibility of recouping their losses, since they will be second in line to collect after the IRS.

While it’s true that you likely won’t be approved for a home loan if you’ve taken zero steps toward resolving your tax debt, showing evidence of working toward tax resolution can provide you with a practical workaround. It’s important to be upfront and honest with mortgage lenders about your unpaid taxes because failing to disclose this type of information can result in immediate denial of your application.

Can I Buy a Home If I Owe Other Taxes?

Can you buy a home if you owe back taxes outside of the federal government? If you owe other kinds of taxes like property tax or state tax, you might still be able to get approved for a mortgage. In general, your likelihood of being approved for a home loan varies based on your individual circumstances, but any type of debt added to your borrower profile can make you a riskier applicant in the eyes of a lender.

To create the best chance for approval, it’s in your best interest to settle or pay these debts before applying for a home loan. This helps to lower your overall debt-to-income ratio and can even help you raise your credit score (given enough time).

If you can’t eliminate your other tax debts before applying for a mortgage, consider reaching out to the state or local agencies to whom you owe debts to arrange an installment plan for your tax liabilities.

Home Loans & Tax Debt

The worst action you can take with your unpaid tax debt is to ignore it. If there’s no settlement or payment plan in place with the IRS, mortgage lenders are unlikely to approve your loan application. It’s critical to address your federal tax debt – along with any other debts – with your lender beforehand.

And, if you know you’re going to apply for a mortgage with an obstacle like unpaid tax debt in your way, take the time to ensure everything else about your financial history is squeaky clean. Keep your spending low, pay off your credit cards, and continue to practice responsible financial behavior.

Make sure to check your credit report often to identify any inaccurate information and discrepancies. For example, if you’ve recently started on a tax repayment plan, double check on your most recent credit report reflects these new changes. You’ll also want to ensure that outdated information, like delinquent past accounts have been properly expunged from your report. Over time, you may see a higher credit score and better credit history through careful monitoring and consistent payment behavior.

Can I Get an FHA or VA Loan With Back Taxes?

You can get approved for an FHA loan or a VA loan with back taxes, but you’ll need to meet certain conditions first.

FHA Loan Approval

While it is possible to obtain an FHA loan if you owe taxes, you’ll be required to go through the manual underwriting process. A manual underwriting process is different from the traditional underwriting process. Usually, a computer algorithm decides whether or not you’ll be approved for a loan based on different variables like your income, debt-to-income ratio, account standing, and credit scores. It’s an automatic process that gives you a fairly quick decision.

Manual underwriting, on the other hand, involves an individual or group who scrutinizes your finances in person. This type of underwriting requires applicants to provide significantly more paperwork and documentation. An underwriter will look for evidence of a valid installment plan or agreement to repay the IRS.

To be approved for an FHA loan with a tax debt, you’re required to have made three months of payments with this agreement in place.

With that said, FHA loan approval isn’t just tied to the status of your tax debts, you’ll also need to meet other necessary requirements for the loan, like a good credit history and certain income thresholds.

VA Loan Approval

If you’re applying for a VA home loan, you can still be approved with back taxes if you:

Satisfy the debt-to-income requirements, even with the monthly IRS payment schedule included

Have made at least 12 consecutive payments on the IRS installment agreement

Make a note of your outstanding back taxes on the loan application

Note: there is no guarantee you’ll get approved for a home loan if you meet these conditions. But meeting these goals will help tilt the odds in your favor, as long as the rest of your finances are strong.

Do Unpaid Taxes Affect Mortgage Payments?

Your unpaid taxes, whatever form they take, may affect your mortgage payments. When lenders evaluate your creditworthiness, they look at your risk as a borrower overall. If you have a large amount of unpaid taxes, you’ll likely be faced with a steeper interest rate.

These higher interest fees act to mitigate the risk of a borrower who presents a higher risk for defaulting based on their financial background.

Every lender has different models and methods to assess the risk a given home loan applicant poses. One lending company may view your financial situation as a medium risk, with a fairly low risk of default. But another company could find fault in your high debt-to-income ratio despite your high credit score. Or, perhaps another lender emphasizes a large down payment over other factors.

This is why it’s critical to shop and compare when you look for mortgage lenders; you might be able to find a lender who offers more favorable terms despite your unpaid taxes. A lender who can offer you a lower interest rate, for instance, means you’ll have lower monthly mortgage payments and pay less over the lifetime of your home loan.

How to Resolve Your Tax Debt

When you owe a tax debt, paying it all at once might not be possible. Plus, it can negatively impact your chances of being approved for a mortgage if you must divert cash away from your intended down payment to pay all of your back taxes.

If the amount is too big to pay off immediately, it’s in your best interest to pay it off in installments or settle with the IRS for a smaller amount. If you’re worried about your tax debt negatively influencing your ability to secure your dream home, it’s a good idea to seek out professionals who can handle the IRS on your behalf.

Contact Advance Tax Relief to Help Deal with Back Taxes

If you have a tax levy on your paycheck or the IRS is threatening you with one, you need a tax professional who specializes in tax debt relief on your side.

Seeking professional help when handling back taxes can help you avoid the discussed errors. At Advance Tax Relief, we offer specialized tax resolution services to help you deal with IRS debt.

Our experts can help rectify erroneous tax bills and guide you in picking a suitable repayment program. Contact us today (713)300-3965 for back tax filing and tax relief services.

Advance Tax Relief is rated one of the best tax relief companies nationwide.

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#OfferInCompromise

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FAILING TO PAY PAYROLL TAXES FOR YOUR BUSINESS?

If you pay people to work for you, you are required to collect and pay payroll taxes. The IRS receives 70% of its annual revenue from payroll taxes, but 18% of the tax gap is due to unpaid or unreported payroll taxes. This tends to upset the IRS.

What if you're part of that 18%? That's what this post is about. You can make this right, but like unpaid income taxes, unpaid payroll taxes incur penalties and interest. 

 

Defining Payroll Taxes

The term payroll tax covers a little ground. In general, it means all employment taxes applying to your business. Those taxes can include:

 

Income taxes

FICA taxes

Unemployment taxes

Other taxes - state and local

FICA includes Social Security and Medicare withholdings while income tax is withheld according to your employee’s W-4. Federal and state governments require you to pay unemployment taxes to help them pay unemployment benefits as needed.

 

Federal and State Taxes

Federal income tax is due monthly or semi-weekly and reported on Form 941, Employer’s Quarterly Federal Tax Return. State and local income taxes and due dates vary according to state and local law.

 

Federal unemployment taxes are required for businesses in one of two situations:

If you pay $1,500 or more to employees in any single quarter

If you have one or more employees for 20 or more weeks in a single year

Depending on how much you owe, federal taxes are paid quarterly or annually, and you must file Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, at the end of the year.

As the employer, you pay 6% of the federal unemployment tax on the first $7,000 each employee earns. You may qualify for a credit of up to 5.4% if you pay state unemployment tax as well.

For state unemployment tax, you generally must pay it in every state where you have employees. Suppose you have a distributed workforce with either remote workers or people who work at a branch of your business in a state other than yours. In that case, you need to pay the taxes according to where the employee lives and works.

 

State unemployment taxes are typically due quarterly, but base wage rates vary by location. Also, depending on the industry and previous unemployment claim experience, your unemployment tax liability may vary.

 

NEED HELP WITH OFFER IN COMPROMISE, TAX SETTLEMENTS, TAX PREPARATION, AUDIT REPRESENTATION OR STOP WAGE GARNISHMENTS?

ADVANCE TAX RELIEF LLC

Call (713)300-3965

www.advancetaxrelief.com

BBB A+ RATED

 

FICA and Forms

Where would the government be without its forms? 

 

IRS Form 941, Employer's Quarterly Tax Return (the same as above), is the form to file each quarter. FICA taxes are paid either monthly or semi-weekly, depending on the size of your payroll. 

 

The withholdings include Social Security and Medicare. You pay the employer's share and withhold the employee's share to pay to the government.

 

Employee Wage and Tax Reporting

You must provide each employee a W-2, Wage, and Tax Statement by January 31 of the following tax year. If you pay independent contractors, you need to send each a Form 1099-MISC, Non-employee Compensation.

 

If you miss the deadlines for distributing these forms, you will pay penalties. The IRS loves its penalties.

 

How to Calculate Your Payroll Taxes

FICA taxes are pretty straightforward. The IRS charges a flat percentage rate of the employee’s gross wages. 

Social Security requires you to deduct 6.2% of the employee’s gross wages until you hit a wage base, which changes according to the tax law. 

For Medicare, you must deduct 1.45% of the employee's gross wages. Together with Social Security, you withhold 7.65% of each employee's gross wages, and then you, as the employer, must match that. 

If you pay any employee an income above a specific threshold, you must withhold an additional 0.9%. 

 

The IRS and state taxing authorities require you to accurately complete your wage and tax reporting forms on time. If you miss distribution deadlines, you’ll pay penalties.

Calculate payroll taxes every pay period. Determine individual withholding according to employee certificates and federal and state income tax brackets. 

 

Penalties

What sort of penalties could you face if you don’t pay payroll taxes? Any of the following:

 

Monetary penalties

Interest on back taxes

Liens against your property

Civil and criminal sanctions

Jail sentences

 

The amount of the penalties depends on several factors, including:

 

The type of infraction

The size of your business

How much you owe

Whether the payment was late or never received

The fees for all this continue to increase according to how long the payments are past due. They build up quickly. 

 

Late one to five days - you pay 2%

Late six to 15 days - you pay 5%

Late more than 16 days - you pay 10%

If you wait until more than ten days past your first IRS notice, you pay 15%

Oh, the IRS notice? That’s how you know you owe. The agency sends a notice or letter telling you of your Failure to Deposit Penalty. 

 

TRUST FUND RECOVERY PENALTIES (TFRP)

No, this isn't a text abbreviation. It stands for Trust Fund Recovery Penalty, a fancy name for the program that decides whether your tax issues are by mistake or on purpose.

TFRP is based on willful failure to collect and pay payroll taxes. An employer may be found willful if it:

 

Were or should have been aware of outstanding taxes and

Intentionally disregarded the law or were indifferent to its requirements

Willful failure to pay is much worse than making a mistake. However, you can seek an abatement by providing reasonable cause for your unreported taxes or late payments. Any of the following are considered reasonable:

 

Fire or natural disaster

The inability to obtain records

Death or serious illness

The unavoidable absence of the taxpayer or immediate family

Be prepared to provide documentation or physical evidence of disaster.

 

And, no, just because you don’t have the money doesn’t count. Lack of funds is not considered a reasonable cause.

 

How to Avoid Penalties

It's always better to avoid penalties than to pay them. And there are several ways to make sure you stay on the right side of the IRS (and the state and local tax authorities; you mustn't forget about them).

 

Improve Payroll Processes

Ensure your payroll process monitors, withholds, and reports all compensation paid to employees. Remit and report all taxes withheld from wages on time.

 

Stay Up to Date with IRS Announcements

The IRS publishes news releases and tip sheets to help employers remain aware of changes in tax law and new form submission guidelines. If you pay state payroll taxes, be sure to pay attention to those as well. Most states have a website where they put news releases and tax law changes.

 

Keep an Unemployment Tax Budget

Make unemployment taxes part of your overall business budgeting process. If you don't, you may find yourself short when it's time to pay. Most businesses create a separate account for payroll taxes to make things easier to manage.

 

Maintain Proper Employee Classification

Employee classification can be complicated. Do you have employees or independent contractors? It’s appealing to classify everyone as an independent contractor to lower your tax liability, but don’t do it.

 

Carefully check the IRS and state tax law definitions of employee and independent contractor and follow them to the letter. 

 

Use a Payroll Provider or Software

You have several choices of payroll software that provide all the tax services you need to report and remit taxes accurately. An alternative is to hire a provider to take care of your payroll tax details. Either way, you remain responsible for the related tax obligations and paperwork.

Contact Advance Tax Relief to Help Deal with Back Taxes

If you have a tax levy on your paycheck or the IRS is threatening you with one, you need a tax professional who specializes in tax debt relief on your side.

Seeking professional help when handling back taxes can help you avoid the discussed errors. At Advance Tax Relief, we offer specialized tax resolution services to help you deal with IRS debt.

Our experts can help rectify erroneous tax bills and guide you in picking a suitable repayment program. Contact us today (713)300-3965 for back tax filing and tax relief services.

 

Advance Tax Relief is rated one of the best tax relief companies nationwide.

 

#FreshStartInitiative

#OfferInCompromise

#TaxPreparation 

#TaxAttorneys

#TaxDebtRelief

#TaxHelp 

#TaxRelief

#BestTaxReliefCompanies