This April 15thÂ the bottom line for many taxpayers will be an amount owed, not a refund due. No matter what the amount it almost always hurts, at least a little, to write that check to Uncle Sam. And, hopefully if you’re one of those who is faced with a tax bill you’ll have the means to pay up. Some of you won’t, however.
The IRS (and your state government) can and will attempt to collect tax debt. At first you’ll receive routine notices in the mail. If you are nonresponsive, the debt will eventually go into collections.Â Collection methods vary, but in general the IRS will go after any asset you have, including your income. (Certain assets are exempt, such as unemployment benefits and social security income.)
The IRS use liens and levies. A lien is a claim against your property. A levy is an actual seizure of your property. One typical levy is seizure of your home, later sold at auction, and the proceeds applied against your tax debt. Another typical levy is wage garnishment.
The IRS has the authority to garnish your wages if you refuse to comply with demands for payment. That means your employer will be required to send in a portion of your paycheck before you ever even see it. The law requires the IRS to leave you with a certain minimum amount of income depending on the number of exemptions you claim. After allowing you the amount that is exempt, there is no limit to how much of your income the IRS can take.Â For a single person claiming one exemption the exempt amount is about $846 per month.
The IRS does have to collect the debt before the statute of limitations â€“ ten years â€“ runs out. However, the calculation of the expiration date can be complicated, and there are several events, including submitting an Offer in Compromise, that will pause the clock. Also, some states have no statute of limitations. One taxpayer ran from old tax debt for many years until one day a lien was placed on his bank account. He eventually settled the debt.
What to do if you can’t afford to pay your tax bill
If you can’t pay your bill, don’t panic. The IRS will work with you.
File your return on time and pay as much as you can by the due date. Interest and penalties kick in immediately and are compounded daily. To request an installment plan for paying off the debt, you can submit Form 9465 with your return in lieu of full payment. If your debt is $50,000 or less, you can apply for the installment plan online. Fees for setting up the installment plan range from $43 to $120, not including penalties and interest charges.Â You can request extra time to pay, pay with a credit card and find out about other options on the IRS’s website.
If your tax debt is old and has already grown, and your income and assets are limited, consider submitting an Offer in Compromise. The IRS will entertain your offer provided the situation calls for it.Â Don’t put your head in the sand. Things will only get worse. In fact interest and penalties will cause your tax debt to mushroom over time. Taxes are the responsibility of all Americans. Even if you believe you shouldn’t have to pay, or that you have the right to opt out, U.S. law is solidly against you and the IRS will not stop attempting to collect the debt you owe. The only way to change the rules is to elect lawmakers to do so.
Kimberly Rotter is a debt management expert and personal finance writer. She is a regular featured contributor onÂ Credit Card Insider,Â ManillaÂ andÂ Credit Sesame, and her work has appeared on numerous other personal finance sites including Yahoo! Finance, LearnVest and Business Insider.
Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.