Tax Day has come and gone for most of the country. And, if you did, in fact, miss recording extra income from your Mount Vernon rideshare side gig (or some other income source)…
Well, the deadline to pay your taxes penalty-free has passed too. If you ended up owing the IRS this year and didn’t meet their Tax Day deadline, unpaid tax penalties are even now being tacked onto what you owe.
Now, that doesn’t mean you need to mentally (or emotionally) go to the worst case scenario, here. But, for the sake of you being prepared for every possibility (and maybe to deter you from a worse fate), let’s explore some of those worst case scenarios.
I’d be surprised if you fall into some of these categories, but, let’s explore them, just in case.
Let me start here: The immediate solution to any of these worst case unpaid tax scenarios is simply to pay what you owe. Now, I know I’m stating the obvious, but it’s really the easiest way to stave off the worst. But, as I’ve mentioned before, there are courses of action you can take here to ease into repayment. It’s like most debt paying situations: Start with what you can pay and work from there.
But, if you can’t pay for other reasons, you need to make it clear to the IRS why you can’t. Just like in any relationship, clear communication can help smooth down any ruffled feathers. That even applies to unpaid tax penalties (if the situation is right).
Fail to pay your taxes on time AND don’t notify the IRS, then this is where worst case scenarios are queued up.
When you’re non-responsive for a significant time and your debt continues to be ignored, it’s at this point that the IRS will take legal steps to make sure they get paid. These steps can include…
Issuing a Summons. The IRS will demand information or documents from you or a third party to get to the bottom of your unpaid taxes. This doesn’t sound so terrible, but if the third party is your Westchester County employer, that could result in a rather awkward conversation and place you in a less favorable light when it comes to trust and stewardship in the workplace.
Issuing a Notice of Levy. This allows a legal seizure of your property to satisfy your tax debt. That process could include taking money from your bank account, or even (and this is in extreme cases) obtaining and selling your property, cars, and other personal property. It’s happened to plenty of people, even celebrities like Willie Nelson and Nicholas Cage.
Revoking Your Passport. If your debts are over 62K, the IRS may issue a delinquent debt certification to the state department, which would revoke your current passport and prohibit you from obtaining a new one. This step typically occurs after a federal tax lien has been issued, and you still have refused to meet their demands.
Thankfully, if the IRS places a tax lien on you, it can’t affect your credit score anymore. In the past, it could have dropped it up to 100 points (yikes). And we all know bad credit puts you in a lot of other precarious situations with finances. But even if it doesn’t affect your credit reputation, here are some things you want to keep in front of you here:
1. Interest: The interest on unpaid tax penalties adds up quickly. Typically, if you haven’t paid your taxes by the due date, you’ll start accruing interest until you pay in full. The interest rate is recalculated every quarter and is based on the federal short-term rate plus 3 percent. And interest is compounded… daily.
2. Late fees: Blockbuster was infamous for them, but the IRS’s are worse. It may start as a small charge at half a percent for each month you’re late, but it can add up to a maximum of 25 percent of what you owe the longer you let it go on.
However, you can slow it down if you do what I mentioned earlier and talk to the IRS. That means, work on setting up a payment plan.
And the good news here is that any payment you make goes towards your actual taxes first, then the late fee, and finally any interest that might have built up. The amount you see on your bill is the total late fee you owe so far, not a separate charge for each month.
Worst case scenarios don’t happen often, but they do happen. And even though the IRS means business, they will work with you. They’re ultimately looking to get paid. And with that being the case, they are often open to negotiations.
Still, negotiating with the IRS can be difficult if you don’t speak their language. So getting some professional support from someone who handles these cases all the time could be beneficial for you. If you’ve got unpaid tax penalties wracking up and want to make sure you don’t face the worst, give us a call:
calendly.com/l-karam/prospect-schedule
We’re in your corner.
Helping you avoid the worst possibilities,
Lynn Karam