IRS Back Taxes Can Destroy Your Life

Wage Garnishments

A wage garnishment stays in effect until the tax is fully paid or until the IRS agrees to release the wage garnishment. Both the IRS frequently uses wage garnishments to collect taxes owed through your employer. Once a wage garnishment is filed, the employer is required to collect a percentage of each paycheck. A wage garnishment requires that a large percentage of taxpayer's wages be turned over directly to the IRS or the state.

The amount that the IRS can keep from any wage garnishment is based on your marital status and number of dependents. Basically the IRS keeps most of the money from a wage garnishment. The amount of your income that is exempt from an IRS wage garnishment is figured by adding the standard deduction you can claim on your taxes and the amount you can claim for exemptions, divided by 52. A family of three subject to a wage garnishment will only be allowed to keep about $325 per week.

Levies

An IRS levy is a legal seizure of your property to satisfy a tax debt. IRS levies are different from IRS Tax liens. An IRS tax lien is a claim used as security for the IRS tax debt, while an IRS levy actually takes the property to satisfy the IRS tax debt.

If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. For instance,

• IRS could seize and sell property that you hold (such as your car, boat, or house), or
• IRS could levy property that is yours but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions).

Tax Liens

When a taxpayer owes back taxes to the IRS, the IRS gains a tax lien on all that person's assets after meeting certain statutory requirements. The IRS has the power to collect back taxes by levying on taxpayers' property as a result of a tax lien. A tax lien attaches to all rights, title and interest of the taxpayer. Once the IRS has a tax lien on all of taxpayer's assets, IRS may enforce that lien by administratively levying his or her assets.

The effect of the Federal IRS Tax Lien statute is that when any person fails to pay any assessment of tax, plus interest, penalties, or costs, a lien in favor of the United States arises upon all property and rights to property, whether real or personal, tangible or intangible, belonging to the taxpayer. Even if the taxpayer makes partial payment, a tax lien will arise for the balance of the tax.

IRS tax lien is filed by the government to protect its interests. Recorded with one or several county recorders, an IRS tax lien basically tells the world that you owe back taxes to the IRS, and is generally devastating to the taxpayer's credit. tax liens make it very difficult to obtain credit or to sell real estate.

Skyrocketing Interest and Penalties

If you did not file on time and owe tax, you may owe an additional penalty for failure to file. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%. The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due, as reduced by any credits for withholding and estimated tax and any timely payments made with the return. After five months, if you still have not paid, the 0.5% failure-to-pay penalty continues to run, up to 25%, until the tax is paid. Thus, the total penalty for failure to file and pay can be 47.5% (22.5% late filing, 25% late payment) of the tax owed. Also, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $100 or 100% of the tax required to be shown on the return.

Destroyed Credit

IRS tax lien is filed by the government to protect its interests. Recorded with one or several county recorders, an IRS tax lien basically tells the world that you owe back taxes to the IRS, and is generally devastating to the taxpayer's credit. tax liens make it very difficult to obtain credit or to sell real estate.

IRS Harassment

IRS collectors are known for their scare tactics and powerful collection methods. The faster you deal with you tax bill, the better of you will be.

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