Taxes Owed

When There are Taxes Owed to the IRS: What You Should Do

You’ve completed the process of filing your taxes and instead of that gigantic refund you were expecting, the IRS says that there are taxes owed. No one wants to hear this, but it happens every day – the expected income tax return check becomes a tax bill that must be satisfied. How do you proceed? Follow these steps to assist with satisfying your tax debt successfully.

Confirm What You Owe

People make errors on tax returns all the time. It’s possible that the tax bill that you are looking at is the result of human error. Take the time to review your tax return to see if there are any errors. A slight miscalculation could be the difference between taxes owed and taxes back. If you haven’t had any significant income differences, check your tax returns from the previous year to see if there are any major discrepancies. Although changes in tax laws can make a difference in your return, your previous year’s return is always a good baseline for comparison.

Even if you receive a letter from the IRS saying that you have taxes owed, don’t assume it’s correct. Always ask for clarification so that you can understand exactly what you owe and why you owe it. Just as we can make mistakes on our returns, the IRS can make mistakes as well. Confirming your debt is the best way to make sure that everything is accurate, and you do not end up paying something that you shouldn’t.

You Never Know What You Can Get Unless You Ask

Taxes Owed To The IRS
Taxes Owed To The IRS

Safe Harbor and Annualized Method

If you are being assessed penalties and interest on your amount owed, yet you paid the same amount of estimated taxes the previous year, you might qualify for the Safe Harbor Tax Rule, which can reduce or eliminate interest and penalties. Dependent on your individual tax situation and whether you received the majority of your income in the later part of the year, you may also be able to use the annualized income installment method. This might reduce or eliminate your tax penalty. Ask a tax professional if this might be an option for you.


The IRS can offer an abatement to remove penalties for the underpayment of taxes and/or reduce the interest rate on taxes owed. Write a letter and explain your individual situation to the IRS. It can be a tax event that is out of the norm, an illness, or even an honest mistake. Let them know and request an abatement of your taxes owed. The least they can do is leave things exactly the way that they are.

Pay What You Can

It’s always good practice to do your taxes as early as you can – if only to reduce penalties and interest by paying what you can before the April 15th deadline. If you can pay all or some of a tax debt, do what you can. Small progress is still progress.

Investigate Installment Plans and Extensions

If you cannot satisfy your tax debt immediately or if you need an extension to pay from April 15th, know your options. The IRS has several different options for tax payments, including payment plans on your balance, depending on the amounts owed and your individual tax situation. Some of the payment plans come with a guarantee not to take a tax levy against you while others do not have that guarantee. If you need an extended period of time to satisfy your tax debt, this is definitely an option to investigate.

Offer in Compromise

As a last resort, you can look into an Offer in Compromise (OIC). When you hear the ads on the radio about being able to settle your tax bill for less than you owe, this is probably what they are talking about. As great as that might sound, in order to qualify for an OIC, you must be willing to offer as much as you are worth minus any current debts. For people with no real property or net worth, this could be an option. But if you are worth more than your tax bill, don’t consider this. The options listed above can work for you without having to do an OIC. Consider it like bankruptcy – it’s not what you want to do, but it’s there if you need it.

Whenever you are faced with owing taxes, it’s always a good idea to talk to an attorney to discuss your options. Consider when looking for advice on how to proceed with your individual tax situation.