Owing money to the IRS can be extremely stressful. If you’re in this situation, you’re probably wondering what’s going to happen. Is the IRS going to garnish your wages, take your assets, or put you in jail? Well, you are very, very unlikely to face jail time — that’s reserved for criminal cases of tax evasion. However, the agency may take your assets or wages if you don’t pay.
Being in tax debt of $20,000 or more is a serious issue. You don’t need to panic — many people owe much higher sums of money to the IRS. However, you shouldn’t ignore the situation. The IRS isn’t going to let a bill this big slip through the cracks.
To give you a sense of what to expect, this post outlines the consequences of owing this level of tax debt. Then, it looks at options for resolving the situation.
Consequences If You Owe 20K in Taxes to the IRS
If you owe $20,000 or more in tax debt (or any amount), the IRS will apply penalties and interest to your account. The agency can also enforce collections against you — this means that the IRS will collect the funds whether you cooperate or not. To protect yourself, you must be proactive about dealing with your tax debt. Otherwise, here’s what can happen.
Most IRS penalties are based on the amount that you owe. That means if you owe $20,000 or more, the penalties can get very high very quickly. For instance, say that you file your tax return late and you owe $20,000. The very first day that you are late, the IRS will impose a 5% failure-to-pay penalty of $1,000. This gets applied to your account every month until it reaches $25% of your balance ($5,000).
If you owe more, the penalty is even higher. Say that you owe $30,000 in back taxes. Now, a 5% penalty jumps up to $1,500. And a 25% penalty becomes $7,500. That’s how much your balance increases just for filing five months late!
There are also late payment penalties as well as penalties for failing audits. In addition to the penalties, the IRS will apply interest to your account at the federal short-term rate. Changes to the rate don’t affect the interest rate charged for prior quarters or years. The penalties and interest can aggressively inflate your balance due.
The IRS can issue a tax lien when you owe any delinquent tax debt, but usually, the agency doesn’t issue a lien unless you owe at least $10,000. The lien attaches to all of your assets, and it gives the IRS the legal right to the proceeds of the assets.
The good news is that at this level of tax debt, you may be able to get the lien removed if you set up a payment plan. To qualify, you may need to set up the payments to come directly out of your bank account.
The IRS has the right to take a broad range of assets to satisfy your tax liability. Generally, the agency starts with the assets that are the easiest to get such as your wages and bank accounts. However, if needed, it can move on to more aggressive actions such as seizing and auctioning off physical property.
How to Pay Off $20,000 or More in Back Taxes
The consequences are scary, but luckily, there are many different resolution options for people who owe this level of tax debt. Keep in mind that there is a lot of subjectivity with these programs, and the best option varies based on your unique tax problem and financial situation.
The following is a brief overview, but if you call us directly, we’ll help you figure out which path is best for your situation.
Guaranteed Installment Agreement
If you can afford to make a large upfront payment, this may be the easiest option. To qualify for a guaranteed installment agreement, you must make a payment to get your tax debt under $10,000. Then, as long as you normally file and pay on time, you can set up a payment plan for the next three years. The IRS automatically accepts these plans for people who qualify.
Streamlined Installment Agreement
This option is also fairly easy to get, and you don’t have to make a large downpayment. As long as you owe $50,000 or less (and you owe individual income taxes, not business taxes), you can apply for a payment plan online. You must be able to pay off the balance within 72 months, and you must have the payments come out of your bank account automatically every month.
If you can’t set up direct debits, you can opt to have the funds withheld from your paycheck, but this takes a bit of extra work and can be embarrassing. Luckily, if you owe $25,000 or less, you can set up this type of payment plan without authorizing automatic payments. This plan is called streamlined because you only have to complete a short application. You don’t have to submit detailed financial information along with supporting documents.
Now, what if you owe over $50,000? Or what if you owe over $25,000 and can’t set up automatic payments? Then, in this case, you can still probably get a payment plan, but you will need to submit details about your finances, and it may be quite challenging to get a monthly payment that you can afford approved. The IRS uses this information to ensure that you’re making the highest payments possible.
Partial Payment Installment Agreement
The IRS only has a limited amount of time to collect tax debts — usually, they have 10 years from the assessment date. If the collection period is expiring, you can leverage that to get a better payment plan.
In particular, with a partial payment installment agreement (PPIA), you make monthly payments until the collection period expires. Then, the IRS waives the remaining balance. When you apply for a PPIA, you have to prove that you’re paying the highest amount possible out of your disposable wages. This can be challenging and you may wish to seek professional assistance.
Payment Plan for Business Taxes
If you’re behind on business taxes such as payroll taxes, $20,000 is a bit of a sweet spot. At this level, you can qualify for an in-business trust fund installment agreement. This is a monthly payment plan for businesses that owe less than $25,000, but you must pay off the bill within three years. If you’re slightly over that level, make a down payment before you apply.
Owe over $25,000 in business taxes? Then, you will need to submit complete financial information and supporting documents in order to be approved for an installment agreement. In this situation, a qualified tax attorney can be critical because they know how to present a compelling argument to the IRS about why you should be allowed to make payments or settle for less than you owe. They may also be able to apply for penalty abatement to get your balance under the $25,000 mark.
Note on IRS Payment Plans
As long as you say that you can pay off the tax debt (again, personal income tax, NOT business taxes) within six years (or by the collection expiration date if sooner), and you qualify for a Streamlined Installment Agreement, the IRS is very likely to accept your request for a payment plan. However, simply because you can get approved doesn’t mean that a payment plan is the best option.
Unfortunately, payment plans have high rates of default — almost half go into default. That can lead to more penalties and collection actions. When you contact us, we’ll help you ensure that you find a resolution option that works with your budget. After all, $20,000 or more isn’t a small sum of money, and monthly payments for that level of tax debt can get pretty high even if you spread it out over several years.
A tax settlement, known as an offer in compromise, is when you pay off your tax bill for less than you owe. To qualify, you must show that you can’t pay off the bill through your disposable income or assets (or that doing so would create a hardship). Then, the IRS agrees to accept a partial payment as payment in full.
However, an offer in compromise is not always that straightforward. We’ve worked with clients who had their initial offers rejected because the IRS assumed that they could make monthly payments based on the information on their application. However, when we helped the clients re-apply, we urged the IRS to look beyond the numbers or consider other details, and then, we were able to successfully get the offers approved.
Currently Not Collectible
If you can’t afford to pay now, the IRS may be willing to mark your account as currently not collectible. A CNC status temporarily stops all collection actions against you. Then, the IRS reviews your financial situation every two years or so, and if it improves, collections can resume.
When you owe $20,000 or more, you will have to share financial details about your income, assets, expenses, and debts to get approved.
When you owe back taxes, you should always look into penalty abatement. The IRS waives penalties for people who paid or filed late due to deaths, disasters, serious illnesses, or other grave issues out of their control. If you’ve been compliant for the three prior tax reporting periods, you can also usually get abatement.
This can drastically help to lower your tax bill. To give you an example, imagine that you owed $15,000 originally. However, over time, you incurred a 25% failure to pay penalty and a 25% failure to file penalty. Together, these penalties increased your bill to $22,500. Plus, interest made it even higher. If you can get these penalties removed, you will be closer to your original balance due, and it should be easier for you to get out of tax debt.
FAQs About Owing $20,000 or More in Taxes
When people contact our office and say, I owe the IRS $20,000, $25,000, $30,000, or other big sums of money, they usually have a lot of questions. In our firm, we frequently see tax bills that are into the hundreds of thousands or even the millions, but other people owing a lot more in tax doesn’t fix your situation.
The truth of the matter is that if you owe tens of thousands of dollars, the IRS isn’t going to ignore it. The agency is going to apply penalties and take whatever steps are necessary to collect that debt. Here are some of the questions that we hear.
What if I don’t really owe the IRS any money?
You have a tax bill from the IRS, but you feel like you shouldn’t really owe the money. This could be due to an incorrect audit adjustment or a change the IRS made to your return after you filed. Depending on the situation and the time frame, you may be able to 1) appeal the tax assessment, 2) apply for an offer in compromise based on doubt of liability, or 3) pay the tax under protest and request a refund.
What if this is my spouse’s tax bill?
In some situations, spouses run up tax bills without their partner’s knowledge. For instance, this may happen if your spouse hid an investment account or a side business from you, and then, the IRS assessed tax when it realized that the income wasn’t reported on your return.
The bad news is that when you file a joint return, you are personally responsible for the tax liability (including liabilities related to income that the other person didn’t report). However, through the innocent spouse relief program, you may be able to get relief from your spouse’s portion of the bill, and you’ll only need to be responsible for yours. To qualify, you usually need to not know about the tax bill and have no reason to know, along with meeting other criteria.
Can I go to jail for not paying $20,000 in taxes?
Generally, not no. You will only face jail time if you’ve committed serious tax fraud. For instance, if you filed several fake returns in other people’s names, you can face jail time. If you just owe $20,000 or more from a legitimately filed tax return, you don’t have to worry about jail. You do, however, need to worry about bank levies and wage garnishments.
Can I lose my house if I owe more than $20,000 in taxes?
It’s very rare for the IRS to take people’s homes for unpaid taxes, but it is legally possible. If you receive a final notice of intent to levy, that means the IRS is getting ready to seize your assets. Usually, personal residences are not at the top of the list, but if you want to keep your assets, you should make payment arrangements as soon as you receive this type of notice if not sooner.
Can I lose my passport if I owe more than $20,000 to the IRS?
You only risk losing your passport if you have seriously delinquent tax debt. As of 2023, this is $59,000 or more. So, if you only owe $20,000 or so, you are in the clear, and you don’t have to worry about any repercussions on your passport.
Get Help Now
At Fortress Tax Relief, we provide our clients with the protection they need when dealing with the IRS. We’re also licensed to deal with all state tax agencies. That means we can help with your back taxes in Oregon or any other state. whether you owe $10,000, a million dollars, or any amount in between, we can help you. When you contact us, we’ll leverage our extensive experience to help you navigate the issue, but we won’t provide you with a one-size-fits-all solution. Instead, we’ll customize a solution to your unique needs. Don’t wait — contact us for help today.