What is Tax Debt?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 August 2019
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Tax debt is simply the amount of taxes that are incurred during a particular tax period and are payable to some type of governmental jurisdiction. For many people, arranging to pay tax debt is not a difficult task, especially if employers routinely calculate and withhold earnings from the weekly or monthly paycheck to forward to the appropriate tax agency. However, people who work for themselves or who own businesses are usually very concerned with managing and paying tax debt in a timely manner, in order to avoid punitive actions on the part of the tax agency involved.

For people living in countries with a national or federal tax agency that must receive an annual return, it is easy to ascertain the total tax debt for the period under consideration. As an example, on tax return forms issued by the Internal Revenue Service, the amount reflected on the line designated as the amount of tax owed constitutes the total tax debt for that annual filing.

This figure is compared to the amount of taxes paid during the same filing period. If the amount of taxes paid is more than the amount owed, a refund check is issued to the taxpayer. Should the amount of taxes collected for the period be less than the actual amount owed, the taxpayer still has an outstanding tax debt and is responsible for paying that outstanding amount.


A failure to properly calculate taxes due on revenue earned is likely to result in an unresolved amount of tax debt. Eventually, the errors will be noticed, often at the time when the annual return is filed. This can create a situation where the taxpayer is responsible for a tax debt that he or she cannot pay off in one lump sum.

Fortunately, many national tax agencies can assist taxpayers who unknowingly fail to pay the correct amount of taxes within a given period. While some type of financial penalty is usually applied to the balance owed, it is not uncommon for the tax agency to work out a monthly installment plan that allows the taxpayer to incrementally pay off the remaining tax debt. In some cases, this arrangement may be managed between the taxpayer and the agency. However, if certain conditions exist, the tax agency may place a garnishment on the salary and wages of the taxpayer until the total tax debt is settled.

In more serious situations, a tax agency may seize assets as a way of settling an outstanding tax debt. However, this type of activity usually takes place only when the remaining tax debt is substantial and there is reluctance on the part of the taxpayer to attempt to make arrangements to pay the debt.


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My husband and I were issued a federal tax lien. We ended up going with a local CPA who charged us way too much, and never ended up resolving tax matters. I quickly learned most tax help is very specialized when dealing with IRS taxes and protecting debtors from their collections!

By the time I got some of my money back, we found an A+ tax firm who jumped in and stopped garnishments from husband's paychecks that got garnished by IRS. We are very thankful we are almost finished with our tax nightmare! I'm taking the time to share this because I know how "severe" unpaid taxes actually are and hope you find honest help like we did.

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