Back Taxes: What They Are, What Can Happen, and Options to Resolve Them

“Back taxes” refers to taxes that remain unpaid after the original due date. Back taxes can result from unfiled returns, an unexpected balance due at tax time, underpayment, or assessments after IRS review. Regardless of the cause, back taxes can grow over time due to penalties and interest and can lead to IRS collection activity if not addressed.

This guide explains what back taxes are, how they accrue, what notices and collection actions may occur, and the most common options taxpayers explore to resolve unpaid IRS liabilities.

What Are Back Taxes?

Back taxes are tax liabilities that were not fully paid by the filing deadline. This can happen even if a return was filed on time but the taxpayer could not pay the full amount due. Back taxes can also occur when a return was never filed and the IRS later assesses a balance.

Common Reasons People End Up Owing Back Taxes

• Loss of income, unexpected expenses, or other financial hardship
• Self-employment income without adequate estimated payments
• Incorrect withholding or life changes (job change, marriage, dependents)
• Unfiled returns or missing tax documents
• Errors, understatements, or IRS adjustments after review or audit

Penalties and Interest on Back Taxes

Unpaid tax balances typically accrue interest and may accrue penalties until the balance is paid in full or otherwise resolved. Interest generally accrues from the due date forward, and certain penalties may apply for failure to file, failure to pay, or accuracy-related issues.

Because these additions can significantly increase the total owed, many taxpayers find it helpful to address the situation sooner rather than later.

IRS Notices: What to Expect

In many cases, the IRS sends a series of notices informing the taxpayer of a balance due, the amount, and deadlines to respond. Notices may escalate if there is no response or if a balance remains unresolved. The specific notice sequence varies by case, but the general pattern is: notice, reminder, and escalation toward possible collection.

IRS Collection Actions That May Occur

If back taxes remain unpaid and unresolved, the IRS has tools it may use to collect. These can include:

• Federal tax liens: A legal claim against property to secure the tax debt.
• Levies: Seizure of assets such as bank funds to satisfy unpaid taxes.
• Wage garnishment: Taking a portion of wages until the balance is paid or addressed.

While the IRS generally provides notice before taking these actions, collection can move forward if deadlines are missed or communication breaks down.

Unfiled Returns and Back Taxes

A common driver of back taxes is unfiled returns. Even if you cannot pay right away, filing required returns can be an important first step because it establishes the actual tax owed and can prevent certain penalties from growing.

In some cases, if returns remain unfiled, the IRS may file a “substitute for return” based on available information. This can result in a higher assessed balance because it may not include all deductions or credits the taxpayer could legally claim.

Options to Resolve Back Taxes

1) Pay the balance in full

Paying in full resolves the liability and stops additional interest and penalties from accruing going forward. However, full payment is not always realistic for larger balances.

2) IRS installment agreement (payment plan)

Many taxpayers address back taxes by setting up monthly payments. Payment plans can vary based on the balance, how quickly the taxpayer can pay, and whether financial documentation is required. Learn more here: IRS Installment Agreements.

3) Offer in Compromise (OIC)

In certain situations, the IRS may accept less than the full amount owed through an Offer in Compromise. This option is based on strict financial criteria and does not apply to everyone. Learn more here: Offer in Compromise.

4) Penalty abatement

When penalties make up a significant part of a balance, some taxpayers explore whether penalties may be reduced or removed under qualifying circumstances. Learn more here: Penalty Abatement.

5) Currently Not Collectible (CNC) status

For taxpayers experiencing hardship, the IRS may temporarily pause collection if the taxpayer cannot afford payments while meeting basic living expenses. Learn more here: Currently Not Collectible (CNC).

Frequently Asked Questions