According to the most recent data from the Internal Revenue Service of the United States, there will be more than $120 billion in unpaid taxes, penalties, and interest by the year 2023. Many people cannot pay their taxes despite the impending threat of significant fines, asset confiscation, and possibly jail.

5 Reasons Why People Fall Behind on Their Taxes 

Facing tax problems is a common occurrence, with various factors contributing. Daniel Morris, a CPA at Morris + D'Angelo, identifies the "too busy excuse," where overwhelmed individuals delay due to life chaos, intending to tackle it later. Significant disruptions, such as illness, job loss, or divorce, also impede compliance. CPA Harlan Levinson cites various reasons, including avoiding tax obligations due to mail reluctance or time restrictions, financial incompetence, or feeling overwhelmed. 

If you are falling behind on your tax responsibilities for reasons other than financial difficulties, it is critical to reassess your tax payment arrangements. The cost of ignoring this obligation is high; the IRS will pursue you persistently until the debt is settled.

Here are some reasons why conscientious people fall behind on their tax obligations.

Lack of Funds

Many people struggle with financial planning and budgeting, which can lead to insufficient funds being set aside for tax payments. Failure to plan your tax liabilities accurately and set aside sufficient amounts throughout the year can result in a large tax burden when tax season arrives. Individuals are frequently unprepared to meet their tax obligations due to insufficient planning. 

Failure to File

Failing to file a tax return is one of the most common mistakes among taxpayers. If you live and work in the United States, exceeding a certain income threshold requires tax payment and income reporting via federal tax return submission. The IRS calculates your due based on your age, income, and filing status. Typically, when income exceeds a certain threshold, filing becomes mandatory, with these tax limits being updated annually to account for inflation.

For the 2023 tax year, individuals under 65 must file if they earn: 

• For single filers: $12,950
• For head of household filers: $19,400.
• For married couples filing jointly with both spouses under 65

The requirements are slightly higher for people aged 65 and older:

• For single filers: $14,700
• For head of household filers: $21,150
• For married couples filing jointly (one spouse 65 or older): $27,300
• For married couples filing jointly (both 65 or older): $28,700

Under Withholding

Legal regulations require employers to deduct taxes from your payment. However, if your paycheck's tax withholdings are insufficient during the year, you, as the employee, could owe the IRS when filing your tax return. This is known as "under-withholding."

This usually happens when an employee claims excessive exemptions on an IRS Form W-4, which is usually submitted during the hiring process. As a result, inadequate income tax is withheld throughout the year.

You have the option of submitting a new W-4 whenever necessary. If you realize you've overpaid, you'll get your money back when you file your taxes.

Neglecting Estimated Tax Payments

Another common tax setback involves business owners and entrepreneurs.

Individuals who work for themselves must often handle quarterly tax payments based on their profits and estimated tax obligations. Unlike typical employees, who withhold taxes from their paychecks, self-employed individuals cannot access this automatic system, which often ensures tax compliance.

Failure to make quarterly estimated tax payments might result in substantial tax liabilities for self-employed individuals at the end of the year. There are several techniques for calculating these quarterly payments. Still, selecting one that does not strain daily finances or lead to hefty tax bills and penalties for underpayment is essential. 

Other Factors

Due to today's fast-paced lifestyle, time constraints affect the self-employed and the general population. Other factors that contribute to individuals owing the IRS are personal circumstances. During tax season, a taxpayer may have a family crisis or an emergency, making timely filing or full payment impossible. In such cases, the IRS mails a bill for the outstanding amount.

Another reason is the misinterpretation of tax laws. Some taxpayers mistakenly claim exemptions, deductions, or credits for which they are ineligible. Typically, the IRS informs the taxpayer of the mistakes and requests validation. The IRS rectifies the tax return without evidence, potentially resulting in significant tax liability, penalties, and interest.

You can avoid most reporting problems by using tax software or hiring an accountant. 

What the IRS will do If you fall behind on your taxes

If the IRS feels you owe tax liabilities, they will act aggressively. They often send bills via mail and may communicate via phone. In severe circumstances, they may visit you at work or home. If they do not get voluntary payment, they may resort to collection proceedings such as property liens, penalties, and interest until the debt is paid.

Can you Go to Jail for not Filing Taxes?  

Failing to file taxes can lead to legal consequences, including potential jail time. Deliberate tax evasion and significant tax debt can lead to criminal charges and imprisonment. 

The Bottom Line

Prioritize self-initiative and educate yourself on tax duties to avoid IRS debts. Consult a tax attorney or expert preparer if you need clarification. It is wise to contact the IRS directly. Always prioritize timely tax filing, irrespective of deadlines.