Owing more than $10,000 to the IRS is intimidating, but knowing the consequences and options is most crucial in paying your debt responsibly. The IRS has a number of remedies for taxpayers that enable them to pay their tax debt, and these include installment agreements, Offers in Compromise, and Currently Not Collectible status. Below is how the possible consequences of owing more than $10,000 are determined and what you can do next.
Effects of owing over $10,000 to the IRS
Owing over $10,000 to the IRS has a number of effects:
- Federal Tax Lien: The IRS can file a Notice of Federal Tax Lien, which is a public notice that tells other creditors that the government has an interest in your property. This can have devastating effects on your credit score and also complicate the sale of assets or securing new credit.
- Collection actions: The IRS will take collection action, such as wage garnishments and bank levies, in the event of nonresponse or failure to agree to a payment plan.
- Loss of tax refunds: The IRS might seize your tax refunds due for federal and state taxes and utilize them against your debt.
Options for settling your debt
Fortunately, the IRS offers taxpayers with several choices so that taxpayers could settle their debt:
- Installment agreements: An installment agreement lets you pay your tax debt in installments over time. This is useful if you have a regular income but cannot afford to pay the whole amount upfront. For debts of less than $50,000, you can usually arrange a long-term payment plan by direct debit payments.
- Short-term payment arrangements: If you owe an amount of $100,000 or less and can pay within 180 days or less, you can pay by instalment online.
- Long-term payment arrangements: Payments are stretched over several years, but until the debt is paid, interest and penalties are charged.
- Offer in Compromise (OIC): An OIC allows you to pay your tax debt in less than full. The IRS applies standards like income, expenses, and asset equity to qualify. It is ideal for those experiencing financial hardship, but it is complex and typically requires expertise35.
- Currently Not Collectible (CNC) Status: If you’re severely financially distressed, you might be eligible to have your debt marked Currently Not Collectible. This temporarily halts collection activity but does not eliminate penalties and interest. Your finances will be re-evaluated over time to decide whether collection activities should be resumed.
Penalty abatement
The IRS may grant penalty relief if you have a legitimate reason for being in arrears with your taxes, like illness or loss of work. This will lower the amount that you pay.
What to do next
If you owe the IRS over $10,000, do the following:
- Reach out to the IRS: Call the IRS to speak about your choices and establish a payment plan or inquire about other relief options.
- Get professional help: Having a tax relief service may guide you through the maze of paying your debt.
- Full disclosure of finances: In establishing an installment agreement or for filing an OIC, you will be required to disclose extensive financial details to the IRS.
- Stay compliant: Keep all tax returns current and filed timely to prevent further penalties and complexity.
Being in debt to the IRS for over $10,000 means taking immediate action to prevent serious consequences. By knowing what you can do and acting now, you can control your debt and start making payments on your tax debt. Through installment agreements, Offers in Compromise, or other methods, it is possible to pay your debt and get back in the black.
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