Tax Debt Relief: How to Get Out of Your IRS Debt
8 MIN READ
Published March 29, 2023 | Updated September 25, 2023
Tax Debt Relief: How to Get Out of Your IRS Debt
Millions of Americans like you have fallen behind in paying taxes to the IRS at one time or another. Owing taxes to the IRS can be an intimidating experience, but tax debt relief is available.
According to recent data from the U.S. Internal Revenue Service, in 2021, Americans owed a total of $133 billion in taxes, interest, and penalties. In 2020, this figure was at $114 billion, showing just how exponentially tax debts have increased in the country in a single year. Individual impact is also high, with an average tax debt in the U.S. of $16,849 per person in 2019.
A reputed debt relief company can use proven strategies to help you reduce tax debt and stop bank levies and wage garnishments from happening.
Tax debt relief can help you settle your tax debts, often for much less than what you originally owed. They can also help you resolve your tax liability in the shortest possible amount of time, so you can regain confidence and control of your finances.
What is Tax Debt Relief?
IRS tax debt relief refers to all the options available for resolving the debt you owe to the IRS. The ways in which you can alleviate debt with the help of tax professionals include tax debt consolidation, settlement, or creating a payment plan.
Your personalized IRS tax debt relief program can be one of these solutions or a combination of them. Working with an experienced and reputed company like TurboDebt is your best bet so you can find which solution will be the most suitable for your unique financial circumstances.
When to Look for Tax Debt Relief
If you have tax debt, it is important to resolve it as soon as possible to avoid heavy penalties. Tax debt can even get you banned from international travel.
If you are finding it difficult to cover your bills, you have received letters from the IRS about your debt and have not filed your tax returns for more than one year, you should consider tax debt relief programs.
You should also consider these options, if you owe overdue taxes, know that the IRS has hired a debt collector to collect your tax debt or have been instructed by the IRS to revoke, deny, or confiscate your passport.
How Your Credit Score is Affected by Tax Debt Relief
Tax debt relief may sometimes affect your credit score, depending on the program you choose.
If you use a personal loan or a credit card to pay taxes, the transactions will be reflected in your credit scores. The reduction, however, will be slight. Your credit scores should also rebound in a short amount of time if you keep up with your debt payments.
Failure to pay your back taxes can lead to a federal tax lien. This means that the IRS is entitled to take unpaid taxes, interest, and penalties from the sale of your property.
Although tax liens are no longer a part of credit reports since 2018, they can still damage your credit.
If you go with one of the payment programs from the IRS, they will not affect your credit scores because they are not considered to be loans.
Beware of Tax Debt Relief Scams
Those dealing with state tax debt are often panicked and vulnerable, so it is not surprising that there are many predatory debt relief companies waiting to take advantage of them.
The best way to avoid debt relief scams is by doing your homework. Start by ignoring advertising and look for legitimate tax debt relief companies with good reviews and ratings.
Here are some of the most common red flags that you are dealing with a scam:
- Offering guaranteed results without learning about your situation.
- Not discussing your financial situation or not asking why you are behind on your tax payments.
- Claiming to eliminate interest and penalties.
- Demanding up-front payment.
IRS Relief Programs to Get You Out of Debt
Owing taxes to the IRS can be overwhelming and scary. There is no need to despair because there are a number of different IRS tax debt relief options available for you to choose from.
Tax Debt Consolidation
One of the most common tax resolution options is through a personal loan that offers lower interest rates. If you have a good credit score, you may be eligible for a personal loan with APR below 5%.
Interest rates vary by financial institution, so it is important to compare the rates or work with a professional that can help you find cost-effective options. Once your loan is approved, you can use those funds to pay off the full amount of your income tax debt.
Continue to make regular payments towards the personal loan to resolve your debt at the earliest.
Just like loans, IRS offers installment agreements that will allow you to pay fixed monthly payments for a predetermined term until your taxes, penalties, and interest are paid off.
Installment agreements do come with fees and charges, but they also offer a number of benefits:
- Affordable debt repayment by spreading your debt over multiple months.
- Avoid garnishments, levies, and liens.
- Penalty fees will no longer be accrued.
Offer In Compromise
An Offer in Compromise allows you to settle your current tax debt for less than what you currently owe. You can pay the IRS in monthly installments or lump sum. If you are facing financial hardship and can prove that you cannot pay your full tax debt, you may qualify for this program.
There are a number of factors that will affect whether you qualify for OIC, such as your asset equity, expenses, and income. Qualifying for this program is extremely difficult.
You should also know that applying for the program requires you to pay a non-refundable fee. You will also need to pay 20% of the total offer amount when you send in your application.
Currently Not Collectible
Delinquent taxpayers that can no longer afford to pay tax debt may sometimes be able to get their bill deferred. It is important to remember that this will not make your debt go away but will only delay collections until your situation improves.
This does come with a few downsides:
- Your debt will continue to accumulate penalties and interest.
- Your tax refunds in the future will be applied to your due tax bill.
- A lien may be filed against your property.
IRS Forgiveness Program
The Fresh Start Initiative by the IRS can make it easier for you to pay your tax debt and avoid liens. The program makes it easier to qualify for the offer in compromise settlement or installment programs.
Here are the main benefits offered by this program:
- The threshold for filing a federal tax lien has been increased to $10,000. If you qualify, the lien notice can be withdrawn.
- The installment agreements have been streamlined. If you owe taxes up to $50,000, you can pay it in 72 months through direct debit payments.
- The program has made the Offer in Compromise program available to more taxpayers. The IRS looks at several factors to determine your ability to pay and will accept an offer if it thinks it is suitable.
Innocent spouse relief can also relieve you from paying taxes if your spouse made an error and understated taxes on your joint tax return.
Alternatives to IRS Relief Programs
If you believe that the tax debt relief programs discussed above are not right for you, here are a few other payment options to consider:
- Pay with a credit card: If you want peace of mind knowing that your tax debt is transferred from the IRS to a credit card issuer, you can use this payment method. It is important to keep in mind that credit card interest rates can be quite high, increasing your debt further.
- Pay with HELOC: If you own a home and have equity, a home equity line of credit can be an option. You will have to ensure that you repay it on time to avoid losing your home.
- 401(k): If you are under 59.5 years old, you can borrow from your retirement account without having to pay the early withdrawal penalty.
Many tax relief companies may offer to help you with tax debt relief, but only a few can deliver. Seek out a reputed and trustworthy company to discuss your financial concerns. A professional can answer all of your questions and can offer you objective advice.
TurboDebt can provide tax help through strategic planning, advising, and consulting services. Our knowledgeable counselors can help you find the right tax debt relief options and help you resolve the financial challenges you are currently facing. Connect with us for a free consultation today.