Back Taxes Explained: What They Are & How To File

Back taxes include outstanding amounts you owe for prior-year taxes. Realizing you owe back taxes can be worrisome; whether you accidentally paid incorrectly or knowingly didn’t pay at all, owing money can be an intimidating prospect.

The IRS has 10 years to collect the taxes that you owe after you file a tax return, or after tax is assessed (charged) to your account, and the amount due will be accruing interest and penalties, so it’s not something that will go away quickly if you lay low. Instead, it’s one of those things that is best tackled by handling it as quickly as possible – and TurboTax is here to help.

To help you contend with what you owe, let’s demystify back taxes. In this guide, we’ll explain what happens when you owe back taxes and how you can go about paying them. Let’s get started so you can get back in good standing with the IRS.

What are back taxes?

Back taxes are taxes you owe for prior years. If you filed your taxes but didn’t pay, you’ll need to make payments to reconcile your tax debt. 

In addition to the original amount of the tax bill, debt is subject to penalties and interest, including late filing and late payment tax penalties.

How do you find out how much you owe in back taxes?

If you’re not sure if you owe back taxes, it would be wise to check with the IRS (800-829-1040) or view your account online to get the amount owed.

Are back taxes ever forgiven?

When you owe back taxes to the IRS, the IRS typically has 10 years from the date the tax was assessed to collect taxes, penalties, and interest. This period is called the Collection Statute Expiration Date (CSED).

Keep in mind that your CSED can be extended or suspended by the IRS, essentially giving them more time to collect IRS back taxes.

Are there any benefits of filing returns for back taxes?

One reason to file back taxes is to collect any tax refunds you may be owed due to overpaid taxes. You can’t obtain a refund without filing a return, and you can lose out on refunds if you wait too long to file. You can only claim a refund up to three years from the due date of your return  (or the date you filed your return if filing an amendment) or two years from the date you pay the tax, whichever is later.

Filing back taxes can also help you avoid penalties and interest. Penalties are based on a percentage of how much you owe. For example, the failure-to-pay penalty is 0.5% of the unpaid taxes for each month or part of a month your taxes remain unpaid. Interest accrues on the balance due starting from the due date of the tax return, at rates that are adjusted quarterly. As you can imagine, they can add up quickly if you owe a lot in back taxes.

Whenever possible, it’s important to prioritize repaying back taxes as soon as you can.

How to file back taxes

The first step, if you haven’t already, is filing your taxes and submitting them to the IRS. Luckily we’ve got a step-by-step guide for you on how to file back taxes. You will also need to make sure that you’ve filed using the proper year’s form. You can either use software like TurboTax or go directly to the IRS’ site and download the forms.

When filing your back taxes, send them through certified mail to get confirmation that the IRS received your documents.

Consequences of not paying back taxes

There are some people who fear filing their taxes late and try to avoid it, but it’s important to consider that there are some consequences for not paying your taxes, including penalties like:

• Failure to pay: If you file without paying your taxes, you may be subject to a failure-to-pay penalty. Many states also apply failure-to-pay penalties.
• Failure to file: Failure-to-file penalties are assessed if you don’t file your taxes by the April deadline or the October extension deadline.
• Interest: Back taxes are subject to interest until they’re repaid in full. The interest rate is the federal short-term rate plus 3 percent.
• Levy: If you can’t pay back taxes, the IRS may file a levy. An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish (withhold) wages, take money in your bank or other financial account, or seize and sell property to collect unpaid taxes.
• Tax liens: A tax lien is a legal claim against your property, which includes your financial and personal assets.

States also impose penalties for late filing and late payment. The laws vary by state.

How to catch up on back taxes

The best way to stay current is to estimate how much you’ll owe ahead of time. You can withhold money from each paycheck or pay quarterly estimated taxes.

If you owe back taxes, you should start by making sure you’ve filed all your tax returns. Once you’ve filed your returns and you know how much you owe, you can create a plan to pay your back taxes. Some potential paths to repayment may include:

• Payment plans: You can contact the IRS to set up a payment plan, allowing you to make monthly payments on your back taxes. This helps you ensure payments are manageable while consistently reducing your tax debt.
• Offer in compromise: In some cases, the IRS may offer relief from back taxes. You can make an offer in compromise (OIC) to settle your tax debt for less than the total amount you owe. Keep in mind that the IRS can accept or deny an OIC.
• Refunds applied: Any tax refunds you receive for subsequent tax years–if you may have overpaid taxes– could also be used to pay your back taxes from prior years. You can speak to a professional to learn more.

Don’t hesitate to take action to start repaying your back taxes. You can file the last three previous years’ taxes using TurboTax software.

What payment methods are accepted for back taxes?

There are several payment methods accepted by the IRS. Use whatever is best for your own financial situation:

• Credit card
• Check
• Money Order
• EFTPS
• Electronic Withdrawal

Remember, if you can not afford to pay the IRS what you owe, you may want to look into filing an offer in compromise with them. If the IRS analyzes your financial circumstances and sees that you can not make the payments, they may be willing to settle for a smaller amount.

Thoughts on back taxes

The sooner you get your back taxes filed and paid, the sooner you will have one less thing to worry about. You can avoid having to deal with penalties and interest in the future if you file and pay timely.

One advantage of using TurboTax is the expertise and tax community behind it. You can ask questions about your specific tax situation and feel confident about submitting your taxes.

No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.