An Overview of Tax Collection & Tax Compliance

Wage Garnishment

The Internal Revenue Code authorizes the IRS to garnish the wages of any taxpayer who has unpaid federal tax debt. The IRS will start by mailing warning notices to inform you of your tax payment obligations. If the notices get ignored, the IRS has the authority to impose a federal tax levy on your wages. 

The IRS will send your employer a notice to withhold a certain percentage of your wages and send them to the IRS. Federal tax levies will still leave some money to cover your living expenses. State tax levies, on the other hand, are not usually this generous.  

Delinquent Tax Returns

Every tax year has a tax deadline for filing tax returns. The deadline is usually April 15th, except during the recent COVID-19 crisis, where it got extended until May 17th. This year it is April 18th, 2022.

If you file a tax return after the deadline or have un-file tax returns, it is considered a delinquent tax return. The IRS will still accept delinquent tax returns that date all the way back to six years. However, you can expect late fees and penalties to get charged on top of the original tax amount that you owe. 

Tax Liens

Tax Liens are another way in which the IRS tries to get the tax money owed. In addition to garnishing wages, they can file a tax lien against any of your assets and real estate holdings. If you earn rental income or some other type of passive income from your assets, they can claim it to pay your tax debts. 

Tax Levies

The IRS can use Tax Levies to directly seize any of your assets, wages, and properties. Not only can they go after your employment income, but they can seize your car, home, retirement accounts, and checking & savings accounts. That is why you need to take all IRS tax notices seriously before tax levies are imposed. 

First Time Penalty Abatement

If it is the first time you’ve ever incurred federal tax debt, you may get approved for abatement of your tax penalties. This would allow your tax penalties for a single tax year to get reduced, along with the interest charges too. 

Offer In Compromise

If you experience financial hardship and cannot pay the taxes owed, the IRS may be willing to compromise and reduce your tax debt. *Although promised by every tax firm to be 100% effective and guaranteed; this is the least likely resolution. 

Partial Payment Installment Agreement & Installment Agreement

If you and the IRS agree on reducing your total tax debt obligation, they may be willing to accept partial installment payments toward the total balance. That way, you don’t have to pay the entire balance at once.

*This is the most likely outcome for most taxpayers.

Currently Non-Collectible

If the IRS recognizes your financial hardship as legitimate, they may temporarily suspend all of their tax collection efforts and levies against your assets until your financial situation gets better. This is known as a Currently Non Collectible status.

Innocent Spouse 

If you file a joint tax return with a spouse and they inaccurately reported certain items on it, the IRS may be willing to reduce or eliminate the taxes, penalties, and interest charges that were imposed. 

Injured Spouse

Sometimes when you file a joint tax return, one spouse may owe money while the other may be entitled to a refund. However, the IRS may apply one spouse’s refund to the tax debts owed by the other spouse. In this case, you may request for some of that tax refund to get paid back to you. 

Penalty Abatement

If certain events in your life prevented you from paying your taxes, you might be entitled to have your tax penalties and interest charges reduced.

Essentially, tax debt compliance are incentives and programs designed by the IRS (like the Fresh Start Initiative) to lower a taxpayer or business owner’s tax bill. Examples include tax credits and other temporary incentives, allowable deductions for pension contributions and tax debt forgiveness and the removal of any tax liens. Your specific tax situation will determine the best form of tax debt relief for you. It’s important to bear in mind the fact that the IRS does not openly promote tax relief but heavily enforces tax collection. That’s why it’s good to seek out a reputable tax service to explore your tax compliance options and determine which is best for you.