Back Taxes: How to Get Help When You Owe the IRS

Back taxes are any federal or state taxes from a prior year that were assessed but not fully paid. They usually come from one of four places: filing a return without paying the balance, underpaying estimated taxes as a self-employed person, an IRS adjustment or audit that increased what you owe, or a substitute return the IRS prepared because you didn't file.

Unfiled returns are a related but separate problem. If you haven't filed, the IRS may not have assessed the tax yet — but it can still build a balance through a substitute for return, which usually overstates what you owe because it ignores deductions and credits. See unfiled tax returns.

The IRS follows a set collection process described in Publication 594. First come the balance-due notices — CP14, CP501 and CP503. Then a CP504 Notice of Intent to Levy, and finally an LT11 or Letter 1058 with 30 days to request a hearing.

Along the way the IRS can file a Notice of Federal Tax Lien — generally when you owe more than $10,000 — keep your future refunds, levy wages and bank accounts, take part of Social Security benefits, and for seriously delinquent debts, ask the State Department to deny or revoke your passport.

Three charges stack on unpaid tax:

• Interest at the federal underpayment rate, currently 7% a year, compounded daily, on tax and on penalties.
• Failure-to-pay penalty of 0.5% of the unpaid tax per month, up to 25%. It drops to 0.25% while you're on an approved plan and rises to 1% after a levy notice.
• Failure-to-file penalty of 5% per month, up to 25%, if the return was late.

On a $20,000 balance, a year of interest alone is roughly $1,450, and the failure-to-pay penalty adds another $1,200. Run your own numbers with the penalty and interest calculator.

Generally 10 years from the date the tax was assessed — the Collection Statute Expiration Date, or CSED. Some actions pause that clock, including a pending Offer in Compromise, a Collection Due Process hearing, bankruptcy, and time spent living outside the U.S. for six months or more. Your account transcript shows assessment dates. Read more in the IRS collection statute of limitations.

The right IRS program depends on how much you owe, your monthly income after basic expenses, and any equity in assets. Here's how they line up:

• Owe $50,000 or less and can pay monthly: a Simple Payment Plan set up online, usually without a financial statement.
• Can pay within 180 days: a short-term plan with no setup fee.
• Can't pay the full balance before the collection statute runs out: an Offer in Compromise may be realistic — check with our OIC estimator.
• Can't cover basic living expenses: Currently Not Collectible status pauses collection.
• Penalties make up a big share of the balance: request penalty abatement.

Not sure? Our tax settlement calculator asks 8 questions and shows which programs fit.

Sometimes, but less often than advertising suggests. The IRS accepts an Offer in Compromise when the amount offered equals or exceeds your reasonable collection potential — the equity in your assets plus a set number of months of disposable income (12 months for a lump-sum offer, 24 for a periodic offer). If you can pay the balance through a payment plan, the IRS generally won't accept an offer. Learn how reasonable collection potential is calculated, or see settlement scenarios for $10,000, $25,000 and $50,000.

1. Gather every IRS letter and download your account transcripts.
2. File any missing returns, even if you can't pay.
3. Decide what you can afford monthly after rent, food, transportation and health costs.
4. If you owe $50,000 or less, apply online for a payment plan.
5. Request first-time penalty abatement if your prior 3 years were clean.
6. If you owe more or can't pay, talk to an enrolled agent, CPA or tax attorney — and check our state guides if you owe your state too.