Written By: Lisa Swan
Many millions of Americans file federal income tax returns each year, and while some of them get refunds on the taxes paid to the Internal Revenue Service, others end up owing money on their taxes. Those who are unable to pay up their taxes by April 15 following the year when they rang up a tax bill will need to pay the taxes up or face levies, liens, or even possible criminal prosecution by the IRS.
How taxpayers can pay federal back taxes
Fortunately, the IRS does offer a variety of programs for people to pay up their back taxes. The federal agency offers what it calls a Fresh Start Program, in which individuals and business can pay their back taxes and avoid a federal lien on their property or incomes. With this program, the IRS gives taxpayers the opportunity to pay back their taxes in a time frame of up to 72 months (six years) instead of having to pay up right away. The monthly installment agreements are taken out of the customers’ bank accounts via direct debit payment. This way, the IRS gets their money, and the taxpayer has the peace of mind of knowing after their agreement with the agency that they will not face the IRS seizing their property or paychecks via a federal lien.
In addition, in some cases, the Internal Revenue Service may take less money than the taxpayer owes as part of an Offer in Compromise. However, according to the Fresh Start Program rules, this will only apply if the IRS thinks they will be unable to get the full tax money owed back. If the IRS has reason to believe that the taxpayer will be able to pay the money back in full, they will not accept an Offer in Compromise for less than the full amount.
What happens to the federal tax refunds of those who still owe back taxes?
In some cases, a taxpayer may still owe money to the IRS for back taxes but be entitled to a federal tax refund in the following years. In such cases, they may wonder what happens to their tax refund. Will they receive it?
The answer is no. They will not receive a tax refund. Instead, the IRS will keep whatever refund the taxpayer was entitled to, and apply it towards the taxes owed. This may be disappointing for the taxpayer counting on the refund, but it could ultimately result in them having to pay less money in interest to the IRS if they pay the agency back the taxes earlier than expected. The refund will still count towards their account, but the customer will not be able to get their hands on it.
Also, there is one other important point that taxpayers who owe back taxes and have an installment agreement in place with the IRS should pay attention to. Their current monthly installment agreement is still in effect, and monthly direct debits will still be taken out of the taxpayers’ bank account until the agreement is satisfied.