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Can I get a refund if I owe back taxes?

Can I get a refund if I owe back taxes?

For every taxpayer, the news of receiving a tax refund always sounds great. After you have received news of a refund, the wait for the credit alert or mail for the tax refund begins. Painfully for some taxpayers, the hope for a tax refund is dashed by a notice that the refund has been used to settle their back taxes.

What just happened?  Do I owe back taxes? Can the IRS do that? Where is my tax refund?

If this is you, let’s try and answer some of your questions about back taxes in relation to tax refunds.


What is back taxes?

The term “back taxes” is used to refer to local, state, or federal taxes that a taxpayer owes from previous years. It includes any tax that is unpaid or partially paid at the federal, state or local level.

The IRS and my back taxes.

As a taxpayer, you should understand that the IRS has the authority to collect any debt owed from you. Therefore if the IRS after a review discovers that you owe back taxes they would automatically divert your tax refund to settle the full amount owed or part of the amount owed. So, the IRS  can take out the money owed for taxes (federal, state, or local taxes) from previous years from your recent tax refund.

Taking out money from your tax refund to settle your back taxes can either reduce your debt or resolve it totally depending on how much your back taxes is in comparison to your tax refund. Also, even if state back taxes are owed, the IRS can divert federal tax refunds to settle the debt owed.

Tax refunds will always be applied to back taxes or debts, even if you are on an installment payment plan until the entire amount of the tax debt is paid off. Painful, but true.

What if I didn’t file a tax return for my back taxes?

For taxpayers that have unfiled back taxes, the IRS has the power to start a delinquent return inquiry which will lead to withholding all your refunds until the back tax returns have been filed. Then the refund will still be used to settle the entire back taxes or part depending on the amount of tax refund available. The amount the IRS takes depends on how much you owe the IRS in back taxes.

Notice CP49?

Remember the tax refund mail you are excitedly waiting for? If you have back taxes to settle, you get this instead, “Notice CP49”.

This notice is sent to inform you of the amount of your tax refund and how much of the tax refund has been used to settle all or part of your back taxes. When part or all of your tax refund is being used to settle back taxes, the IRS will send this notice to inform you of their intent to use all or some of your tax refund to pay up outstanding back taxes.


My Tax refund didn’t settle all my Back Taxes

There is no need to worry if this is your situation. The good news is that part of your debt has been cleared, however, all the amount that you owe in back taxes still needs to be fully paid for. Therefore, you can opt for a payment plan with the IRS or an installment agreement to pay up the tax debt in monthly installments. For taxpayers that are totally unable to settle their tax debts, an offer of compromise or partial payment installment agreement can be preferable depending on your circumstances. However, it is important to take a step early to pay off tax debts in order to avoid tax penalties.

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Internet subscribers, users, and online readers are advised not to act upon this information without seeking the service of a professional accountant. Any U.S. federal tax advice contained in this website is not intended to be used for the purpose of avoiding penalties, of any kind, under U.S. federal tax laws.