Owe Money on Taxes? It Could Derail Your Travel Plans
KEY POINTS
- If you owe money on your taxes and can't cover your entire bill, it's important to set up a payment plan with the IRS.
- If you don't, a number of consequences could ensue.
You may be surprised at this consequence of owing the IRS.
Most people who file taxes are due a refund from the IRS. But not everyone falls into that category. And if you have an underpayment on your hands, you may be left with a hefty tax bill to pay.
Why might that happen? If you took on a new side gig but didn't pay estimated taxes on your earnings along the way, you could end up owing the IRS a lot of money. Or, if you became self-employed but grossly underestimated your tax obligation, that, too, could result in a scenario where you have a large tax debt on your hands.
Either way, if you owe the IRS money, it's important to resolve that tax debt as soon as possible. If you don't pay the agency what it's owed, the IRS can come after your wages and have them garnished to be made whole.
But that's not the only consequence that might ensue if you don't pay your tax debt. You could also, in some cases, be denied a passport. And that could really spoil your upcoming travel plans.
A surprising consequence with unpaid tax debt
If you owe the IRS a lot of money and apply for a passport or to renew a passport, you may be denied. And an existing U.S. passport may be revoked if you have an unpaid IRS tax debt.
Now for this to happen, you generally need to owe a large sum of money -- more than $55,000, to be specific. So if you owe a few thousand dollars, you may not have any issue getting a passport.
But if you fail to pay the IRS a smaller amount, you could still face unwanted consequences, like garnished wages and penalties and the interest on the sum you owe. And so it's better to avoid that scenario.
What to do if you can't pay your tax debt
If you owe the IRS a fair amount of money, you may not have the option to simply dip into your savings account and come up with it on the spot. But don't stress. The IRS is good about working with taxpayers to get on an installment plan, so if you can't cover your full tax debt right away, you can set up an arrangement to pay it off over time.
Once you have an installment plan set up with the IRS, the agency will not attempt to garnish your wages to get repaid as long as you stick to that plan's payment schedule. Similarly, if you owe a truly whopping sum but are following your installment plan's schedule, you shouldn't have an issue getting a passport or renewing one.
Sticking to the terms of an installment plan basically gets you out of the harsher consequences that come with not paying your taxes because you're considered current as long as you make your payments on schedule -- even if you still have an outstanding balance. It's sort of like credit cards -- you might have to carry a balance forward and pay it off over time, but as long as you make your minimum payments, you're considered current on your account.
Of course, it's best to avoid a scenario where you owe the IRS a large chunk of money. So if you have a year when that happens, a good bet may be to sit down with a tax professional afterward and come up with a plan to avoid that situation going forward.
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