Here’s Why Millions of Americans Fall Behind on Their Taxes
Most Americans fall behind on their taxes because they fail to file, don’t have enough income tax withheld from their paychecks, neglect to make estimated tax payments, misunderstand the tax laws, or experience a financial crisis. Delinquent taxpayers often contact a tax attorney for help minimizing penalties and interest, stopping collection activity, and settling their debt with the IRS.
Millions of Americans Owe the IRS
In 2017, approximately 14 million American taxpayers owed the IRS over $131 billion in taxes and penalties. At the end of the 2019 tax season, about 23.4 million returns had a balance due – up from 22.2 million in 2018. Although the Tax Cuts and Jobs Act is partially to blame, other reasons people owe back taxes include:
- Failure to file. Approximately 7 million taxpayers fail to file their federal income tax returns each year. If a taxpayer meets the IRS’s age, filing status and income criteria for having to file taxes, and fails to file by the deadline, a 5% failure-to-file penalty can be assessed.
- Underwithholding. Approximately 20% of taxpayers don’t have enough tax withheld from their paychecks during the year. Two wage-earner families and those with unearned income are more likely to under withhold. Several criteria can exempt taxpayers from the underwithholding penalty.
- Failure to make estimated tax payments. Business owners and self-employed individuals are responsible for making monthly or quarterly tax payments to the IRS. Taxpayers who fail to pay estimated taxes often face a large tax liability at the end of the year.
- Financial or Family Crisis. Family or financial crisis prevents many taxpayers from filing income taxes and paying what is owed before the due date.
- Misunderstanding the tax laws. Taxpayers sometimes make mistakes when filing their taxes or take deductions, credits, and exemptions they are not entitled to claim. Filing mistakes can result in significant tax liability, penalties, and interest.
How Taxpayers Can Get Back on Track
There are numerous strategies that help taxpayers get back on track before penalties and fines cause IRS debt to grow exponentially. To stop the collections process, many people work with a tax attorney to apply for payment plans, submit offers in compromise, or request a temporary delay in collection.