What Is Delinquent Taxes and What Are the Consequences?

Delinquent taxes refer to unpaid taxes that have passed their designated due date. Once taxes become delinquent, additional penalties and interest may begin to accrue, increasing the total amount owed. This financial issue can affect individuals and businesses, impacting various types of taxes.

Understanding Tax Delinquency

Taxes become delinquent when a taxpayer fails to meet payment or filing requirements by the specified due date. This includes not filing a required tax return, not paying taxes owed, or underpaying estimated taxes. For instance, if an individual does not pay their federal income tax by the annual deadline, or a business fails to remit sales tax collected, these amounts are considered delinquent.

Federal income taxes become delinquent if not paid by the due date on the tax return or an IRS notice. State income taxes, property taxes, and sales taxes also become delinquent if not paid by their deadlines. For property taxes, non-payment can lead to penalties and interest, and eventually, the property may become “tax-defaulted.”

Tax authorities notify taxpayers of their delinquent status through official notices and letters. The IRS, for example, sends a series of communications. These notices detail the amount owed and provide deadlines for payment or contact. Responding promptly helps in exploring resolution options.

Actions by Tax Authorities

Once taxes are delinquent, tax authorities can take various enforcement actions to collect the outstanding debt. A tax lien is a legal claim by the U.S. government against a taxpayer’s property when a tax debt is not paid. This lien attaches to all of a taxpayer’s assets, including real estate, personal property, and financial assets. A Notice of Federal Tax Lien is a public document filed with local recording offices. While a lien secures the government’s interest, it does not immediately seize assets.

Tax levies represent a more direct collection action, allowing the tax authority to legally seize a taxpayer’s property. Types of levies include wage garnishments, where a portion of a paycheck is withheld and sent directly to the tax authority. The IRS does not require a court order for wage garnishment, unlike many other creditors. The IRS determines the exempt amount necessary for living expenses.

Bank levies are another form of seizure, where the tax authority contacts a taxpayer’s bank to freeze and then seize funds. Once a bank receives a levy notice, it places a hold on the account for a period before forwarding the funds to the tax authority. Property seizures involve the tax authority taking physical assets like homes, cars, or other property. These actions are often preceded by multiple notices.

In cases of seriously delinquent federal tax debt, passport restrictions can be imposed, meaning the U.S. Department of State may deny or revoke a passport. For 2025, a seriously delinquent tax debt is defined as an unpaid federal tax debt exceeding $62,000 where the IRS has already filed a lien or levy and administrative hearing rights have expired. Some tax cases may also be referred to private collection agencies for debt recovery efforts.

Available Resolution Methods

Taxpayers have several methods to resolve delinquent tax obligations and avoid further enforcement actions. Setting up a payment plan, also known as an installment agreement, with the tax authority is one option. This arrangement allows taxpayers to make monthly payments over a set period. An installment agreement can prevent immediate collection actions like levies and liens. Individuals owing $50,000 or less and businesses owing $25,000 or less may qualify for a long-term payment plan, which can extend up to six years.

An Offer in Compromise (OIC) is another resolution method. An OIC is an agreement between the taxpayer and the tax authority to settle the tax liability for a lower amount than what is originally owed. The tax authority accepts an OIC if it determines that the amount offered is the most it can expect to collect within a reasonable timeframe, considering the taxpayer’s ability to pay, income, expenses, and asset equity. Eligibility for an OIC requires the taxpayer to have filed all necessary tax returns and made current estimated tax payments.

Currently Not Collectible (CNC) status may be an option for taxpayers experiencing significant financial hardship. When granted CNC status, the tax authority temporarily delays collection efforts. This status provides a temporary reprieve from collection actions. While under CNC status, the debt is not forgiven, but collection activities are paused until the taxpayer’s financial situation improves. Taxpayers need to demonstrate their financial inability to pay through detailed financial statements to qualify for CNC status.