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Back taxes refer to unpaid taxes that remain outstanding from previous years, either due to missed payments, underreporting of income or adjustments in tax filings after an audit. These unpaid balances can accrue penalties and interest over time, which may significantly increase the amount owed. Individuals or businesses with back taxes may face consequences from the IRS, such as wage garnishments, tax liens or even property seizures, depending on the severity and duration of the debt. A financial advisor or a tax professional could help you create a plan to avoid back taxes and manage your liability.

","

What Are Back Taxes?

","

Back taxes are taxes that remain unpaid after the original due date, typically resulting from underreporting income, omitting earnings from a tax return, underpayment or making errors in a tax filing.

","

Often, back taxes occur when taxpayers miscalculate deductions, credits or income, causing them to underpay unknowingly. They may also arise when a taxpayer fails to file altogether, due to oversight or the inability to pay the owed amount. When these issues are identified, either by the taxpayer or the IRS, the discrepancy leads to a back tax liability.

","

For example, imagine an independent contractor who earned additional income but forgot to report a portion of that amount on their tax return. If the IRS later audits the contractor’s account and discovers the missing income, they will adjust the tax return to include this income. The contractor would then owe back taxes on the unreported amount, plus any interest or penalties that had accrued since the original filing.

","

How Do You Know If You Owe Back Taxes?

","

Taxpayers can find out they owe back taxes through several channels, most commonly through official IRS notifications. The agency regularly reviews filed tax returns and, if discrepancies are found, will mail a notice detailing the amount owed, including any interest or penalties. These letters often include deadlines and specific instructions on how to settle the debt. You should note that the IRS will never make first contact by phone, email, or social media.

","

Individuals who suspect they may owe back taxes but haven’t received a notice can check their tax status by accessing their IRS account online. The IRS website provides a secure portal where taxpayers can view past returns, see balances and identify any outstanding amounts. You can also call the IRS to find out at 800-829-1040.

","

Additionally, consulting past tax filings or contacting a tax professional can help uncover missed payments or overlooked income that might have led to an unpaid balance. Sometimes, state tax agencies may also notify individuals of back taxes, including property taxes, owed for state income taxes.

","

Consequences of Back Taxes

","

When a person owes back taxes, the IRS and, in some cases, state tax authorities can take actions to recover the debt. These consequences vary depending on the amount owed, the duration of the unpaid balance and whether the taxpayer has taken steps to address the debt.

","

Here are five possible repercussions of unpaid back taxes:

","$4c","

What to Do If You Owe Back Taxes

","

","

If you owe back taxes, taking proactive steps to address the debt can prevent the situation from worsening and may reduce some of the financial strain. Here are six general steps to help you manage back taxes effectively.

","

1. Verify Your Tax Balance

","

Begin by confirming the amount you owe. You can do this through your IRS online account, which provides a detailed breakdown of taxes, penalties and interest.

","

2. File Any Unsubmitted Returns

","

If you have unfiled tax returns, submit them immediately, even if you cannot pay the full amount owed. Filing can reduce late-filing penalties and also gives the IRS a record of your outstanding balance, which may facilitate future resolution options.

","

3. Explore Payment Plans

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The IRS offers flexible payment options to help you manage your debt. Short-term payment plans allow up to 180 days to pay in full, while long-term installment agreements extend payments over months or years. The long-term plan requires a setup fee, but both options make it easier to budget your payments and avoid more severe IRS actions.

","

4. Request Penalty Abatement

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In some cases, taxpayers can apply for penalty relief. The IRS may reduce or waive penalties if you can demonstrate reasonable cause, such as a medical crisis or natural disaster, or if this was your first time incurring a tax penalty. This can lessen the total debt burden, especially if penalties have accrued over time.

","

5. Consider an Offer in Compromise

","

For those experiencing serious financial hardship, the IRS provides an option to settle the debt for less than the full amount owed through an offer in compromise (OIC). To be eligible, you must meet certain criteria, such as having filed all legally required tax returns, not being in an open bankruptcy proceeding and having made all required estimated tax payments for the current year.

","

If approved, an OIC can provide substantial relief, but it’s generally granted in limited circumstances.

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6. Seek Professional Help If Needed

","

If your tax situation is complex, a tax professional, such as a certified public accountant (CPA) or tax attorney, can help you navigate the process. They can negotiate with the IRS on your behalf, file necessary documents and ensure that you take advantage of all available relief options.

","

Bottom Line

","

","

Addressing back taxes promptly is essential to avoid escalating penalties, interest and potential legal action from the IRS. By filing any past-due tax returns and paying owed amounts, you can mitigate additional charges and regain control over your financial situation. The IRS offers options such as payment plans or offers in compromise to assist taxpayers in settling their debts.

","

Tips for Planning Taxes

","$4d","

Photo credit: ©iStock.com/shapecharge, ©iStock.com/LaylaBird, ©iStock.com/skynesher

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Taxpayers typically amend their returns to correct mistakes, claim missed deductions or report additional income. While the IRS does allow amendments, many worry that filing a Form 1040-X could increase their chances of an audit. Since tax laws are complex, making an error when amending a return could lead to further issues. A financial advisor […]

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","

Can Amended Tax Returns Raise Red Flags?

","

Submitting an amended tax return does not inherently raise red flags, but it does prompt the IRS to take a second look at your filing. The IRS receives thousands of Form 1040-X submissions each year, and most are processed without issue. However, certain factors may lead to increased scrutiny, such as adding substantial new deductions or credits or making a significant change to your reported income.

","

In most cases though, if an amended return is filed correctly and honestly, it is unlikely to trigger an audit. The IRS understands that mistakes happen and provides a formal process for making corrections.

","

Red Flags That Could Trigger an Audit

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While an amended return alone is not a guaranteed audit trigger, certain red flags in your tax filings—whether original or amended—can increase your chances of being selected for review. The IRS uses an automated system to identify discrepancies and anomalies that deviate from normal taxpayer patterns. Here are four common red flags that could trigger an audit.

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Reporting a Large Income Change

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If your amended return shows a significant increase in taxable income, the IRS may have questions. For example, if you initially reported $50,000 in income but later amended the return to include an additional $25,000, this could prompt the IRS to investigate further.

","

Claiming Large or Unusual Deductions

","

Excessive or unusual tax deductions may stand out. Common deductions that may trigger scrutiny include:

","

Charitable contributions that exceed normal giving patterns
Large home office deductions
Uncommon business expenses that do not align with the taxpayer’s occupation

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Failing to Report All Income

","

If an employer or financial institution reports income to the IRS that was missing from your original return, an amendment that suddenly includes that income could prompt a review. The IRS cross-checks reported income against W-2s, 1099s and other official records, so omitting income—even by accident—can cause issues.

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Making Frequent Amendments or Late Filings

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Consistently amending tax returns over multiple years or filing amendments close to the IRS deadline may draw attention. While amending occasionally is normal, repeated corrections suggest a pattern of inaccurate reporting, increasing the likelihood of closer scrutiny.

","

How to Amend a Tax Return

","

","

If you need to correct an error, claim a missing deduction or update your income, the IRS provides a formal process for filing an amended tax return using Form 1040-X. Below are five steps can help reduce the risk of errors and potential audit concerns:

","$60","

After you have filed your amended return, make sure to store a copy of it and any supporting documents in case the IRS requests further information. The IRS typically takes eight to 12 weeks to process amendments, but delays may occur during peak filing seasons.

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Bottom Line

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","

Filing an amended tax return is a standard practice for correcting mistakes, but many taxpayers worry about whether it will raise red flags or trigger an audit. While amending a return does not automatically lead to an IRS review, certain changes—such as reporting additional income or claiming large deductions—could lead to increased scrutiny. To minimize potential issues, taxpayers should make sure that their amended returns are accurate, well-documented and filed correctly.

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Tax Planning Tips

","$61","

Photo credit: ©iStock.com/MarijaRadovic, ©iStock.com/Jacob Wackerhausen, ©iStock.com/Inside Creative House

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\n","featuredImage":{"id":"cG9zdDoyODE4NDA=","databaseId":281840,"altText":"Closeup of Form 8379 from the Department of the Treasury Internal Revenue Service.","date":"2025-03-19T16:50:19","fileSize":1144979,"mimeType":"image/png","modified":"2025-03-19T16:52:03","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2025/03/Screen-Shot-2025-03-19-at-4.50.03-PM.png","__typename":"MediaItem"},"modified":{"datetime":"2025-3-19","readable":"March 19, 2025","readableExtended":"March 19, 2025, 4:54pm ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjoyMDU=","databaseId":205,"userId":205,"avatar":{"url":"https://secure.gravatar.com/avatar/ce446fd229b7bc1bb05c6af5d8c05057?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mo Mozuch is a writer and editor based in New York City. He has worked throughout the editorial industry, including as Senior Editor for Newsweek and Executive Editor for International Business Times. 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When a married couple files a joint tax return, both spouses typically share responsibility for any tax liabilities. However, if one spouse has past-due debts — such as unpaid federal taxes, state taxes, child support or student loans — the IRS may seize the entire tax refund to satisfy those obligations. Form 8379, also known as the Injured Spouse Allocation, allows the injured spouse to request their fair share of the refund so it is not used to cover the other spouse’s debts.

","

A financial advisor can help you determine eligibility for Form 8379 and guide the injured spouse in recovering their share of a joint tax refund.

","

What Is Form 8379?

","

Form 8379, called the Injured Spouse Allocation tax form, allows an injured spouse to reclaim their portion of a joint tax refund that was offset due to the other spouse’s outstanding debts. These debts can include overdue federal or state taxes, child support, or student loans. This form is meant to protect a spouse who is not legally tied to the debt from losing their rightful share of the tax refund.

","

You should note that filing Form 8379 does not remove the debt or change tax responsibilities, but it stops one spouse’s refund from being used to cover the other’s obligations.

","

How to File Form 8379

","

If your share of a joint tax refund was applied to your spouse’s debts, here are six general steps to help you file Form 8379:

","

Obtain Form 8379 from the IRS website or a tax professional.
Complete with details from the joint tax return, including income, credits and deductions for both spouses.
Indicate whether you are filing with a tax return or separately.
Provide details about the offset, including the amount taken and the agency responsible for the debt.
Sign and date the form to confirm its accuracy.
Submit Form 8379 to the IRS along with the tax return (if applicable) or as a standalone document. If it is being filed separately after an offset has occurred, a paper version must be mailed to the IRS.

","

Who Can File an Injured Spouse Allocation

","

Not all spouses qualify to file Form 8379. The IRS has specific rules for who can apply. First, you may file if you earned income, paid taxes, or claimed credits on a joint return, and your portion of the tax refund was used to cover your spouse’s debts.

","

Second, you can qualify if you are not legally responsible for the debt. However, if both spouses share responsibility for the debt, Form 8379 cannot be used.

","

For example, if you and your spouse owe joint taxes or co-signed a loan, the IRS considers both of you responsible. In that case, you would not be eligible to file an injured spouse allocation.

","

Frequently Asked Questions

","

What Is the Difference Between an Injured Spouse and an Innocent Spouse?

","

An injured spouse is someone whose portion of a tax refund was used to cover their spouse’s outstanding debts. An innocent spouse, on the other hand, seeks relief from responsibility for tax liabilities that arose due to their spouse’s misreporting or fraud. Form 8857, also known as the Request for Innocent Spouse Relief, is used to request relief from joint tax liabilities when a spouse can prove they were unaware of tax understatements caused by their partner.

","

How Long Does It Take to Process Form 8379?

","

Processing times for Form 8379 vary. If filed electronically with a joint return, it typically takes around 11 weeks to process. If filed separately after an offset, it may take up to 14 weeks to receive the refund allocation.

","

Can Form 8379 Be Filed After an Offset Has Occurred?

","

Yes, Form 8379 can be filed after the IRS has already offset a refund. In such cases, the injured spouse must submit the form separately, providing details about the offset and their income, deductions, and credits to determine their portion of the refund.

","

Bottom Line

","

","

Filing Form 8379 allows an injured spouse to reclaim their share of a joint tax refund when it is seized due to their partner’s past-due debts. You must meet the eligibility requirements and complete the form correctly to ensure that the rightful portion of the refund is protected. For those dealing with ongoing refund offsets, consulting a financial advisor or tax consultant can provide strategic tax planning insights and help navigate financial challenges effectively.

","

Tips for Tax Planning

","$79","

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\n","featuredImage":{"id":"cG9zdDoyNjgxODc=","databaseId":268187,"altText":"A pen sits on top of Form W-8BEN.","date":"2024-11-13T16:01:19","fileSize":74645,"mimeType":"image/jpeg","modified":"2024-11-13T16:01:36","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2024/11/form-w-8ben.jpg_s1024x1024wisk20cIAxKk3QWVCQkY82tWC1xTQBOkC0N2HHsEmTXKo3vct4-1.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-11-14","readable":"November 14, 2024","readableExtended":"November 14, 2024, 10:18am ET"},"multipleBylinesByRole":{"editedBy":{"id":"dXNlcjo5Mw==","databaseId":93,"userId":93,"avatar":{"url":"https://secure.gravatar.com/avatar/04483497dbd73f712b504e401c9c7d22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Mark Henricks has reported on personal finance, investing, retirement, \r\nentrepreneurship and other topics for more than 30 years. His freelance \r\nbyline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"William","fullName":"Mark Henricks","lastName":"Henricks","name":"Mark Henricks","postCount":{"pageInfo":{"offsetPagination":{"total":809,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"mhenricks","__typename":"User"},"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":{"id":"dXNlcjoxMjA=","databaseId":120,"userId":120,"avatar":{"url":"https://secure.gravatar.com/avatar/9be66d92947dd5b190bf90987b5e85f2?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Patrick Villanova is an Editor for SmartAsset, producing comprehensive personal finance content to help consumers make better decisions with their money. 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Foreign individuals use IRS Form W-8BEN to certify their non-U.S. status and claim benefits such as reduced withholding rates that may be available because of an income tax treaty. The form helps determine how much tax will be withheld on income from U.S. sources. To fill out a W-8BEN form, you’ll need basic information like your name, country of citizenship and, if applicable, a taxpayer identification number. Additionally, non-U.S. individuals need to specify the country where they claim tax treaty benefits, ensuring compliance with U.S. tax requirements while potentially lowering their tax liability.

","

A financial advisor can help you build and manage income streams. Connect with financial advisor matches today.

","

What Is the W-8BEN Form for Individuals?

","

The W-8BEN form is used by non-U.S. citizens and residents to confirm their foreign status. The form, officially known as the “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals),” lets individuals claim tax treaty benefits that could reduce or eliminate withholding tax on income earned from U.S. sources. This covers interest, dividends, rents, royalties, annuity payments and other income.

","

If you are a foreign citizen living outside the United States who has income coming from U.S. entities such as banks or brokerages, Form W-8BEN helps verify your non-U.S. residency status. This can prevent unnecessary withholding at the default 30% rate.

","

The form contains sections for providing identification details, such as full name, address and country of citizenship. Other sections request information on specifics of any applicable tax treaty.

","

Unlike most tax forms, the W-8BEN form is not filed with the IRS. Instead, it is given to the financial institution or payer responsible for distributing income to the individual. Since the institution is also responsible for withholding, this allows the correct amount of withholding to be applied.

","

The form typically remains valid for three years. After that it must be renewed or resubmitted. It may also be necessary to resubmit it sooner if the individual’s circumstances have changed.

","

How to Fill Out a W-8BEN Form

","

","

Filling out the W-8BEN form involves providing information to certify non-U.S. status and claim treaty benefits. Here’s a detailed look at each section.

","

1. Identification of Beneficial Owner

","

Begin by providing your full legal name as it appears on your official identification. Enter your country of citizenship in the next line, followed by your permanent address, which must be located outside the U.S. If you have a mailing address different from your permanent one, provide that in the designated space. You can leave this blank if your permanent and mailing addresses are the same. You can’t use a bank or other institution’s address in place of your address.

","

2. U.S. Taxpayer Identification Number (TIN)

","

If you have one, enter your U.S. taxpayer identification number (ITIN or SSN) in the space provided. If you don’t have a U.S. number, enter a foreign TIN issued by your home country if you have one. Providing this information is often necessary to claim tax treaty benefits but isn’t always mandatory. Some countries do not issue TINs to their citizens.

","

3. Claim of Tax Treaty Benefits

","

This section is crucial for establishing eligibility for a reduced rate of withholding tax under a tax treaty, this section. Enter the name of the country where you live. This country must have an active tax treaty with the U.S. The form asks you to specify the article and paragraph of the treaty that applies to your income type and state the withholding rate you are claiming. You may also need to confirm that you meet other conditions set by the tax treaty.

","

4. Certification

","

Before signing, read the certification carefully. You are declaring that the information you provided is correct and that you qualify for the claimed benefits. If everything is correct, sign and date the form where indicated. Also, include your printed name to complete the certification.

","

5. Submitting the Form

","

Submit the W-8BEN directly to the withholding agent or the financial institution that requested it. Don’t send it to the IRS.

","

How Often Is the W-8BEN Filed?

","

","

The W-8BEN form is typically valid for three years from the date it is signed. After that, you’ll need to renew it if you continue to receive income from U.S. sources.

","

However, if there are significant changes in your circumstances – such as a change in residency or citizenship status – you must file a new form to ensure the withholding agent has your updated information. If you move to the U.S. or to a different foreign country, that would be a change calling for an update. A move within your original country may not.

","

Also note that withholding agents may request an updated form at their option. You can keep your tax status current and avoid unexpected withholding rates by renewing the W-8BEN before it expires or whenever your situation changes.

","

Bottom Line

","

Completing the W-8BEN form correctly is a key step in helping investors who live outside the U.S. manage tax obligations on U.S. income. It ensures you can benefit from any available, lower tax treaty rates and avoid unnecessary withholding. Provide accurate information and renew the form as needed. Three years is the maximum time the form is valid. Staying aware of renewal needs and updating the form when circumstances change can simplify handling cross-border tax matters and save money.

","

Tax Season Tips

","$8c","

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