How would a person pay back taxes?

Question

My buddy worked for a company for 4 years. He didn't pay taxes for all 4 years and made $40000 every year. The company he worked for messed up his w2 and never took it off exempt after many attempts of trying to change it (have no way to prove this). So finally he quit. Now he is going to school with no job but he needs to take care of this problem. He has seen all the commercials on tax lawyers that can reduce the debt but can't afford it. What is a good way to start to take care of his problem, so he can move on from this?

Answer 1

Did he actually get a W-2, a 1099, or no paperwork?

If he was set up as exempt, he'd have had to file a new W-4 each year. Did they take out social security and medicare, and give him a W-2?   It sounds more like the company was treating him as an independent contractor, where they wouldn't take out any taxes, it would be his responsibility.

If he hasn't filed, then that's the first thing he needs to do.

What those companies on TV will do is prepare something called an offer in compromise.  And what their slick ads do NOT tell you is that they'll charge you an arm and a leg to do so, that a local CPA can do the same thing and will do it a lot cheaper, and that most OIC's are NOT accepted by the IRS.  You can't even file an OIC until the returns have been filed.

Answer 2

Your buddy knew that he still owed taxes.  Therefore, he could have made estimated payments.  However, he CHOSE not to do so.  He could have easily found this out be reading the tax form booklet that he received for the last 4 years.

He now owes back taxes for 4 different years plus interest and penalties.  He will need to work out a payment plan with the IRS.

When he received his first paycheck, he should have noticed that taxes were not being withheld.  He should have filed a new W-4 with each paycheck.  If this problem was never corrected, he should have written letter after letter to get this problem solved.  By sending letters either certified or registered mail, there is proof of attempted mailing and receipt.  He could have sent emails to his employer as well.  

A good way to start is to file his tax returns since he received W-2's from his employer.  If he received 1099's and if he believed that he was an employee vs. an independent contractor, he should file a claim with the IRS to have them resolve the issue.  His former employer could be in a lot of trouble as well.

Answer 3

Your buddy must file tax returns for all these years. It does not make any difference if the company took him as "exempt" or not.

If no taxes were deducted from his income, that means he worked as independent contractor and must also pay SE taxes.

You buddy must pay due taxes with interest and penalty. There is no other option.

Answer 4

Contact the IRS (they're not as scarey as people say, I promise) get the total he owes, then go from there.

Typically.... they'll send him a bill, he'll make arrangements to pay, and voila, done. It's not so bad, I know tv, media makes it sound like a nightmare, but it really isn't.

I've dealt with them, not exactly "fun", but not quite dreadful either.