Unemployment may be a cause of IRS tax debt problems. It may also exacerbate existing tax problems because you’ll have less money available to make regular payments towards your tax debt.
Past-Due Tax Bills
If you already have accumulated tax debt, you may be unable to make payments while unemployed. If you have an existing installment agreement, contact the IRS in advance to discuss your options. Otherwise, you could default on your agreement and face enforced collection activity.
Temporary unemployment may not be enough to qualify you for an Offer in Compromise. However, if you have a disability that may reduce your future income potential, the IRS may consider this when determining your reasonable collection potential. You may want to request currently not collectible status if you are concerned about bank levies or other IRS seizures while you look for a new job.
New Income Sources
Remember that you’ll have to pay taxes on unemployment benefits and any severance pay you received. If you don’t have taxes withheld from your unemployment compensation, you may end up owing taxes when you file your return.
If you need to take on gigs or other independent contractor work, make sure you understand estimated taxes. You may need to send money to the U.S. Treasury four times a year for self-employment taxes and income taxes. If you don’t pay enough during the year, you’ll owe underpayment penalties when you file your return.
If you need to withdraw funds from your retirement account to get by, make sure you understand the tax consequences. You’ll need to pay taxes on your withdrawals and a 10% early withdrawal penalty, unless one of the statuary exceptions applies.
Changes on Your Tax Return
Your tax return may look different if you were unemployed for a large portion of the year. You might qualify for credits that you don’t usually receive or end up in a lower tax bracket. Go over these changes with a tax professional so you don’t make any errors that could increase your risk of an IRS audit.
Contact a tax attorney if you’ve become unemployed and need help resolving your IRS tax problems.
Get help with your IRS tax problems by calling The Gartzman Law Firm at (770) 939-7710. We can listen to your concerns and help you find the best tax resolution strategy for your case.