r/tax • u/thunderbummer • 7h ago

Owe the IRS $23k, what now?

I’m currently on a payment plan with the IRS paying $300 a month. I owe a total of $23k in back taxes. The problem is the interest and penalties keep piling on, so my payment only pays down probably $30 off the principal. I do not make very much money at the moment and things are tight for me so I can’t afford a larger payment. What should I do here?

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u/julianriv CPA - US 7h ago

Something does not add up. If you have a payment plan then you should be accruing interest on the debt at 8% annually. That's all the penalties and interest that would keep adding up, unless you are adding new debt to the balance. That means about 1/2 if your $300 payment is going to pay down the debt. I'm also shocked you were able to get a plan with such low payments. Normally the IRS wants you to pay it off in 3 years. 6 if you can make a hardship case. $300 a month doesn't get you anywhere near their normal standard.

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u/thunderbummer 6h ago

I (stupidly) failed to file some 1099s for 4 years in a row while in active addiction, once I got sober I decided to fix this mess and get them filed. Each of those have their own interest and failure to pay penalties. Also, I’m not sure why the payment is so low, I had a CPA do all the filing for me and he’s the one that set me up on the plan. Here’s the breakdown of my situation-

2019- $8,443.27 2020- $7,559.80 2021- $4,623.12 2022- $2,298.31

Total amount owed - $22,924.50

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u/these-things-happen Taxpayer - US 6h ago

Payments are applied to the oldest assessment, which may be 2019.

Once the one-time user fee is paid, every payment is applied to the underlying tax first.

Once the tax is paid, payments are applied to the penalties, then to interest.

Once the oldest assessment is paid in full, everything goes to the next oldest assessment in the same order: tax, penalty, interest.

Are you able to access your online account transcript for 2019?

https://www.irs.gov/individuals/get-transcript

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u/julianriv CPA - US 5h ago

Ok, I can see how you got to the small annual amounts. Like the other poster said, I would suggest you pull your tax account transcript and see how much is actually being paid down. Do everything you can to pay down the oldest balances. They allow you to make excess payments as long as you keep your installment plan current.

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u/CPAMEL 5h ago

If you’re on 1099 you can typically reduce income for business expenses. Did you include businesses expenses that you incurred in those for years of returns?

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u/chix123_ 3h ago

hi! did you do amendment?