Back / Prior Year Taxes

Back Taxes

Back taxes are taxes that weren’t paid at the time they were due, typically from a prior year. You can owe back taxes at the federal, state, or local level, and you can owe them for a number of reasons.

Many people owe back taxes because they didn’t have enough money withheld for taxes from their paychecks throughout the year. Some people may also owe because they were unaware that unemployment benefits are taxable most years, and they didn’t have money automatically withheld. Selling stock or other investments at a profit could result in capital gains taxes, which you must report. You could also wind up owing back taxes because you made a math error or deliberately underreported your income.

If you’re self-employed or a freelancer, you could wind up owing if you don’t pay both the employee’s and employer’s share of Social Security and Medicare taxes. Freelancers are required to make quarterly estimated tax payments if they expect to owe at least $1,000 when they file their return, and they could face penalties for failing to do so.

A government might implement different approaches to collect back taxes, including criminal charges, offering a voluntary disclosure program that allows a broad variety of payment methods, or tax liens.

If the taxes remain unpaid, the tax authority could use a tax levy to legally seize the taxpayer’s assets (such as bank accounts, investment accounts, automobiles, and real estate) to collect the money it is owed.

Do I Have to Pay Back Taxes?

Not everyone will owe back taxes if they’ve neglected to file a return. A lot of people will find the IRS owes them a refund when they file a tax return. You might receive a tax refund if you had more taxes withheld than you needed to, or if you qualify for certain tax credits, such as the Earned Income Tax Credit.

You’re required by law to pay them if you do owe back taxes. The IRS has 10 years from the time your taxes were due to collect them.

Some companies claim that they can settle your tax debts for you, but very few taxpayers will qualify for the programs these companies advertise. Working with the IRS when you can’t pay your taxes is typically a better option. The Federal Trade Commission (FTC) warns that settlement companies often leave people with even more debt.