What is Back Tax Relief?

Mary McMahon

Back tax relief is a form of tax relief offered to people who owe back taxes, meaning that they are not current on their tax payments. There are a number of situations in which people may qualify for back tax relief, and it helps to retain an accountant or tax lawyer with experience in these matters to work out the best arrangement with a government agency which handles taxes. It is also important to be very aware of every step of the process to ensure that it is done correctly; for example, a taxpayer may mistakenly think that back taxes are being forgiven when actually they are being placed in forbearance, and will need to be paid off at some point in the future.

Man climbing a rope
Man climbing a rope

Tax agencies try to avoid allowing people to rack up back taxes, because they are well aware that once back taxes start to accumulate, they can start to seem insurmountable, and people may be less inclined to pay them. Back taxes can happen when withholding was not done correctly and someone owes taxes, when someone failed to fill out a tax return properly and the tax agency determines that debt is owned, or when people who pay their taxes directly, rather than through an employer, fail to pay their taxes. This includes businesses and independent contractors.

In some cases, people can obtain back tax relief directly through a tax agency. Classically, the agency will ask the taxpayer to get current with taxes for that year. For example, a business which owes quarterly tax payments for April and June will be asked to pay those before the agency will address back taxes from prior years. Getting current is designed to ensure that once the back taxes have been resolved, the taxpayer won't be in immediate financial trouble all over again.

If a taxpayer can present convincing information that he or she cannot pay back taxes due to extreme hardship, a tax agency may take a partial payment and write off the rest of the debt. In extreme cases, all of the debt may be forgiven. More commonly, back taxes are put in forbearance as a form of back tax relief, and a payment plan is worked out, with the tax payer paying a small amount each month or quarter until the debt is resolved. This involves working out an individual agreement with a government representative who is authorized on behalf of the tax agency, and it can be a lengthy process.

Getting back tax relief through a lawyer or accountant is often more productive. Professionals know some tricks of the trade which may not be accessible to average tax payers, and they are willing to go to battle for their customers because they stand to lose out if a good deal is not arranged. Tax payers should be aware that the government tends to be very attached to money which it thinks it is owed, and getting relief for back taxes can be a battle which lasts for months or even years.

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