Tax debt is technically the difference between taxes owed and taxes paid. Every year every US citizen is expected to file their taxes with the Internal Revenue Service (IRS).
However if you happen to miscalculate your taxes owed, chances are you might have acquired some kind of tax debt. In the US right now there is a total of $527 billion worth of tax debt, with the average amount of debt owed by a person equating to around $16,000.
The major reason for tax debt across the country is the misconception of what you thought you owed to what you actually owe. If you are worried about whether you might have tax debt or not don’t worry, currently there are around 900,000 Americans who are indebted to IRS.
Let’s have a look at how you can find out whether you owe anything before the IRS notices start arriving in your mail.
How to find out if you have tax debt
If you’re looking to find out whether you owe the IRS any money prior to being notified there are different ways of accessing this information.
1. IRS Online System
Launched in 2016, the Internal Revenue Service now runs an efficient online portal where tax payers can sign in and access information that they would have previously needed to physically go in to an office, inquire via mail, or by phone.
Through accessing your profile on the portal you will be able to see what your payment amount is, the balance of every tax year that you might owe, and a history of up to 24 months of your payments. This service is completely free and easily accessible however you will need to register.
In order to register you will need to provide the following private information;
- Social security or tax number
- Filing status
- Date of Birth
- Your mailing address (indicated in your last tax return)
- Your email address
- Your phone number
- A financial account number
The Internal Revenue Service (IRS) will also run a soft credit check to do an identification check. This won’t affect your credit score in any way, but will serve to verify your information.
This all might seem like quite the hassle, however once you’re registered to use the online portal it will save you a lot of time and make your taxing experience more bearable.
2. Phone the Hotline
However if you’re more old school, and prefer not to deal with your taxes online whatever your reason may be, your other option is to directly call the IRS hotline*.
Obviously this option opens up your interaction with an IRS employee that might prove more helpful to your situation. You can call and inquire as to how much you owe based on your taxing information. This should allow you to get all the information you might need, in a direct manner.
The only downside to this is that you would possibly have to wait on hold if the lines are busy. This is why we recommend calling earlier in the day.
Call this number if you would like to inquire into the balance you owe: 1-800-829-1040*
If you’re not a fan of online gadgets, nor the phone there is always the option of using the good old postal system. If you filed a 1040, 1040A or a 1040EZ form you can mail the IRS requesting an account transcript. Essentially this transcript will cover the previous tax year.
So if you are looking for debt or penalties from any years prior this might not be the most appropriate. This method of inquiring will take longer than others, which might cause you to accrue more interest or penalties on your already existing debt. So be sure to choose the right option for your situation.
What are your options?
If you have inquired now and find that you do indeed have some form of debt what are your options in dealing with this? Let’s have a look below at the steps you can take to handle or manage the debt you owe to IRS.
1. Pay it back
If you are in a fortunate enough position where you can pay your debt you should do so as soon as possible to prevent accumulating further penalties or interest on the amount. If you don’t have the cash to pay it back you could also pay the debt back using a credit card, this might prove to be more manageable in repayment amounts depending on your credit. The IRS accepts credit cards.
2. Inquire about a payment plan
If you are not in the position to make a full payment of your debt owed in 120 days, you could in fact request a payment plan from IRS. In this situation you might be eligible for a longterm payment plan where you can pay monthly instalments.
In this case you are essentially volunteering a monthly payment of an agreed upon amount. These payment plans are often only available if you owe less than $50,000, and will still incur interest and penalty costs every month.
3. Put a delay on it
If you can prove to the IRS that paying back the debt you owe will prohibit you from affording basic living expenses you could probably request a delay of payment.
Once you have proven to the IRS that you cannot afford to currently pay the debt they will delay it for a specified amount of time, however after that they will contact you again. Also keep in mind that for the period of time which you delay payment, it will still be building up its interest.
If you can prove to the IRS that paying back the debt owed would result in significant financial difficulty you can approach the IRS with an offer of compromise.
Essentially you would sit down in negotiation with the IRS and reduce the amount owed to one manageable and payable by you.
Of course don’t forget that you always have the option of consulting a financial/tax professional for more in depth advice.