Filing back taxes: What to do when you owe the IRS money or returns

Woman sitting at home looking at documents she needs for filing back taxesImage: Woman sitting at home looking at documents she needs for filing back taxes

In a Nutshell

If you didn’t file a federal income tax return for a year when you should have, or you have unpaid taxes, it’s important to file before the IRS takes action. Being proactive might help mitigate potential penalties and interest.
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This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma.

You can fall behind on your taxes if you don’t file a federal income tax return (if you’re required to file), or don’t pay any tax you owe, by the due date — generally April 15 for most people.

Owing back taxes can feel overwhelming. The prospect of facing penalties and interest, or just the sheer work of filing a past-due return, may tempt you to keep putting things off.

But we can’t stress enough that being proactive is the way to go when it comes to dealing with the IRS. As soon as you realize you may owe back taxes, or you’ve missed a filing deadline, it’s important to file and pay those outstanding taxes as soon as possible to help minimize the consequences of falling behind.

Let’s look at some things to know when you have to pay or file back taxes.

How do I file a back tax return?

Filing a past-due return is basically the same as filing a return on time, with a few important differences. Here’s how it breaks down.

1. Gather all your documents

Whenever you file a return, you’ll need all the forms that show your income for the tax year you’re filing for. So if, for example, you’re filing a return for the 2018 tax year, you’ll need any W-2s, 1099s, interest statements and other types of income statements that apply to that year.

Hopefully, you saved those documents in a tax records file. If you’re missing information, you can request a wage and income transcript from the IRS for a previous year. The transcript will show all the information returns the IRS received on your behalf for that tax year, such as W-2s, 1099s, 1098s, IRA contributions you made and more.

And, if you’re claiming certain deductions or tax credits, you’ll need to have all the necessary documentation, such as receipts for medical expenses or mortgage interest you paid during the tax year.

2. Download the tax forms you need

Go to the IRS website to download tax forms for the year you need to file. Forms can change from year to year, so be sure you’re using the correct one. For example, the IRS significantly revised Form 1040, which is the main form for individual income taxes, in 2018. The new form replaced the old 1040, 1040EZ and 1040A versions, and moved a lot of information off the form and onto additional schedules.

3. Complete and mail the forms, and pay anything you owe

You may be able to use an online tax preparation service to complete the forms, but you won’t be able to e-file your back tax return. You’ll need to print out and mail the forms to the address listed in the 1040 instructions for the tax year you’re filing. If you’re unsure how to proceed, a tax professional can help. You may also be able to get free assistance from the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs.

And if you have a tax liability — back taxes, penalties and interest — you’ll need to pay it or request a payment plan.

Why should I file back taxes?

It’s against the law to not file a return for a tax year when you’re obligated to file. And there are other compelling reasons to file and pay back taxes.

Minimize penalties and interest

The IRS can penalize you if you don’t file a return or pay any tax you owe by the deadline. Generally, the penalty for not filing is more than the penalty for not paying. You may also be charged interest on any unpaid tax balance.

Filing your back taxes and paying anything you owe may help limit the amount of interest and penalties you’re subject to for missing the deadline.

Claim a tax refund

If you’re owed a refund for a particular tax year but neglected to file, it’s important to know that you have a limited time — three years from the original due date of the return — to file your back tax return and still be eligible to claim your refund.

Keep in mind that if you file a return for the current year and are due a refund, the IRS may hold onto that refund if you have any past-due returns you haven’t filed yet.

Can the IRS seize your refund? Learn about the Treasury Offset Program.

Prevent a possible credit obstacle

Tax returns may play a role in credit decisions — lenders might ask you for copies of your filed tax returns. If you’re missing a return for a year when you should have filed, your loan processing could possibly be delayed.

Preserve your passport

If you owe more than $51,000 in taxes, penalties and interest, the IRS will notify the U.S. State Department, which in turn can deny your application for a new or renewed passport. The State Department may also revoke your passport.

What could happen if I don’t file back taxes?

If you don’t file a tax return for a year when you should have filed, or don’t pay federal income tax you owe, the IRS can take action.

The agency may send you a notice or a bill. Or, it may file a return on your behalf — and might not bother to give you any tax breaks you’re eligible for. Remember that the IRS can easily do this because it likely already has your income information from your employer, customers you do gig work for (if you’re self-employed), banks and other sources.

Additionally, federal law generally allows the IRS to try to collect on a tax debt for 10 years, though there can be exceptions.

What if I owe more than I can pay?

If you’re facing a tax bill you can’t afford to pay in full right away, you may have payment options.

  • Consider paying the IRS with a credit card or personal loan. Using credit to pay your tax debt likely means you’ll pay interest to the lender. But those costs may be less than the penalties and interest you might face if you fail to pay the IRS on time and in full.
  • If you owe $50,000 or less, you can request an online payment agreement from the IRS. Short-term installment agreements give you 120 days or less to pay. A long-term agreement can give you up to 72 months to pay what you owe in monthly payments.
  • If you meet certain criteria, you may be able to ask the IRS for an offer in compromise, which could allow you to settle your tax debt for less than what you owe.
  • In dire cases when paying anything might prevent you from covering your basic life expenses, the IRS may agree to temporarily delay collection of your past-due tax debt.

Next steps: Plan ahead for next year

Filing accurate tax returns by the filing deadline and paying all the tax you owe on time goes a long way to help you avoid problems with the IRS. Don’t wait to clear up your back taxes before getting a jump start on this year’s tax return.

Start a file for all your tax documents, such as income statements from your employer, interest statements from your bank or receipts for deductible expenses you hope to itemize. Having everything in one place will be helpful when it’s time to prepare your return.

You can use the IRS Tax Withholding Estimator to help ensure you’re having the right amount of tax withheld from your paycheck. If you have too little withheld throughout the year, you could face a tax bill when you file next year. And if you withhold more than necessary, you could get a refund next year.

Relevant sources: IRS Publication 5123 | IRS Tax Withholding Estimator | IRS: Filing Past Due Tax Returns | IRS: Free Tax Preparation for Qualifying Taxpayers | IRS News Releases | IRS Internal Revenue Manual | IRS: Eight Facts on Late Filing and Late Payment Penalties | IRS Fact Sheet: Help Yourself by Filing Past-Due Tax Returns | IRS: Extension of Time to File Your Tax Return | IRS Topic No. 202 Tax Payment Options

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