According to the most up-to-date information from the U.S. IRS, Americans owed over $114 billion in unpaid taxes in penalties, interest, and penalties in 2020. Despite the risk of harsh penalties, confiscation of assets, or even prison time, millions remain behind on their tax payments.
Failure to File
The most frequent mistake that taxpayers make is not filing an income tax return. However, suppose you reside in the United States and earn an income within the United States above a minimum threshold during a specific year. In that case, you're obliged to pay tax and report the income on an income tax return for the federal government. To determine whether you need to file a tax return and to determine if you are required to file, the IRS employs three criteria that include your age, filing status, as well as your income. Generally, the law obliges you to submit once you have reached an income threshold. The tax amounts are adjusted each year to reflect inflation. For the 2020 tax year, those who are younger than 65 are required to file if they earn at least:
- $11,400 for single filers.
- $18,650 for household filers.
- $24,800 if married couples file jointly, with spouses less than 65 years old.
Under-Withholding
Employers are required to withhold taxes from your pay. You might not be aware that if taxes aren't withheld from your paycheck all of the time, you, as an employee, are likely to have to pay an IRS when you submit your tax return during tax time. This is also referred to by the term "under-withholding."
It's most often caused by an employee who claims exorbitant exemptions on the Internal Revenue Service Form W-4 (completed during the hiring process). It means there isn't enough tax on income collected throughout the year. You can file a fresh W-4 at any point. If you find you've given too much money to your government agency, you'll receive the cash in return when you submit your income tax.
Failing to Pay Estimated Tax
Another way of getting tax deficient is related to entrepreneurs and business owners. Self-employed individuals have to pay their taxes on a monthly schedule, dependent on their income and estimated tax liabilities. Because they are self-employed, they don't have an employer who withholds taxes from their pay - which is usually an effective way to protect people who may forget to pay their taxes. However, if you're self-employed and don't make your tax estimates each year, it will have an immense tax burden at the close of each year. There are many methods to estimate your quarterly tax payment. Be sure that the method you select will not cause you to struggle to meet your daily expenses or result in massive tax bills and penalties for underpayment.
Additional Triggers
It's not only individuals who are self-employed Americans who are stretched for time. Everyone is busy nowadays. The IRS might also owe people the events happening in their personal lives. Taxpayers may face an issue with their family or have an event during tax time, which prevents them from submitting the tax return on time or paying their tax amount in full. In this case, the IRS will send the taxpayer a tax bill for the outstanding amount.
Some taxpayers might misunderstand the tax laws and claim exemptions, deductions, and credits they aren't entitled to take advantage of. In such a case, the IRS usually contacts the taxpayer to inform them of the mistake. The taxpayer must then prove the deduction, exemption, or credit claimed. If there is no proof, the IRS will revise the taxpayer's tax return, and the taxpayer could be liable for an enormous tax bill, in addition to interest and penalty. A simple way to fix most mistakes in tax reporting is to utilize tax software or an accountant. These programs will help you identify the deductions applicable to your specific situation and minimize the chance of making mistakes.
What IRS Will Do
In any of these scenarios, if IRS believes that you owe over the tax due, they're not unwilling to reach out to the taxpayer. The IRS usually sends you a tax bill by mail; however, they could also reach you via phone. In extreme cases, they might even try to meet you at work or home. If the IRS cannot get you to pay your tax obligation, the agency may resort to actions to collect. It can enact an obligation on your home and levy a garnishment of your earnings. They can also add interest and penalties until the obligation is settled.
