Will My Dept Sink Me With A Prospective Employer?
November 24, 2009 8:46 AM Subscribe
Will a prospective employer not hire me when they find out I'm repaying money to the IRS?
I'm in the running for a job I very much want, and in the course of my research on the company discovered that they run routine credit and background checks on prospective employees.
I have minimal outstanding credit card debt and no collection agency reports on outstanding bills. My concern is this: although I've filed my taxes every year, due to a drop in my income, I didn't have enough money to pay what I owed for tax year 2008.
Since I'm currently a freelancer, it was a substantial amount ($4000). I worked out a payment plan with the IRS immediately, and the debt is being deducted bit by bit from my bank account every month, but I assume that it will show up on a credit check.
However, I don't want to give any reason for my prospective employers to not hire me. Would this give them pause? Should I try to find a way to clear the debt immediately, say, by asking a family member for a loan to pay the IRS?
I also would appreciate any information on when these checks are usually conducted. For example, are they conducted during the interview process, or after they make a tentative offer subject to the results of these checks? I haven't signed any authorizations to make these checks, but I'm not sure if they need my permission to do them.
Thanks for your help.
I'm in the running for a job I very much want, and in the course of my research on the company discovered that they run routine credit and background checks on prospective employees.
I have minimal outstanding credit card debt and no collection agency reports on outstanding bills. My concern is this: although I've filed my taxes every year, due to a drop in my income, I didn't have enough money to pay what I owed for tax year 2008.
Since I'm currently a freelancer, it was a substantial amount ($4000). I worked out a payment plan with the IRS immediately, and the debt is being deducted bit by bit from my bank account every month, but I assume that it will show up on a credit check.
However, I don't want to give any reason for my prospective employers to not hire me. Would this give them pause? Should I try to find a way to clear the debt immediately, say, by asking a family member for a loan to pay the IRS?
I also would appreciate any information on when these checks are usually conducted. For example, are they conducted during the interview process, or after they make a tentative offer subject to the results of these checks? I haven't signed any authorizations to make these checks, but I'm not sure if they need my permission to do them.
Thanks for your help.
My understanding is that IRS payment plans don't show up on your credit report. You can always go to annualcreditreport.com and check.
posted by phoenixy at 8:50 AM on November 24, 2009
posted by phoenixy at 8:50 AM on November 24, 2009
My IRS payment arrangement never showed up on my credit report.
That being said, owing the IRS money isn't really a credit "negative". Its just a thing that happens to people for a lot of different reasons. So long as you're making your payments, I can't imagine why your employer would care.
posted by anastasiav at 9:03 AM on November 24, 2009 [1 favorite]
That being said, owing the IRS money isn't really a credit "negative". Its just a thing that happens to people for a lot of different reasons. So long as you're making your payments, I can't imagine why your employer would care.
posted by anastasiav at 9:03 AM on November 24, 2009 [1 favorite]
It might depend on the fine-print of your agreement with the IRS. Is their activity strictly limited to defined decuctions from your bank account, or is there something in there that will allow them to begin garnishment of your wages in the event you take a job with an employer?
While your potential employer may not discover your arrangement with the IRS now, if there is a garnishment clause in your contract with the IRS, your employer will find out very quickly once you are hired. I'm not saying that would affect your continued employment. It probably shouldn't. But it might throw a shadow over your reputation there. It just depends on the people in-charge.
posted by Thorzdad at 9:25 AM on November 24, 2009
While your potential employer may not discover your arrangement with the IRS now, if there is a garnishment clause in your contract with the IRS, your employer will find out very quickly once you are hired. I'm not saying that would affect your continued employment. It probably shouldn't. But it might throw a shadow over your reputation there. It just depends on the people in-charge.
posted by Thorzdad at 9:25 AM on November 24, 2009
I freelance a lot and taxes are always kind of a mess. I've found the best way to avoid IRS headaches is to turn yourself into a true business (a sole proprietorship or a Class C or Class S corporation) and write off everything you can think of. If you owe $4000 then I can estimate your freelance income to be between $20,000 and $25,000 depending on a lot of different factors. This is really not that much money and business write-offs and expenses for a freelancer can add up to quite a bit. The more you are able to write off, the less income you have to pay taxes on.
That said, consider re-filing your 2008 taxes with maximum business/expenses write-offs. I'll bet your taxes-owed number sops by quite a bit.
If this is confusing, then hire a competent CPA for a few hundred bucks to help you.
posted by camworld at 9:48 AM on November 24, 2009
That said, consider re-filing your 2008 taxes with maximum business/expenses write-offs. I'll bet your taxes-owed number sops by quite a bit.
If this is confusing, then hire a competent CPA for a few hundred bucks to help you.
posted by camworld at 9:48 AM on November 24, 2009
I worked for several years reviewing credit reports and never ever saw a IRS payment plan reflected on any of the reports. I would go with no, I won't show however I agree with 1. pull your own and 2. there is nothing wrong with paying the IRS.
posted by 3dd at 10:16 AM on November 24, 2009
posted by 3dd at 10:16 AM on November 24, 2009
I used to routinely run credit checks on prospective employees and the only situation in which a debt to the IRS would make me hesitate would be if the employee was being considered for a tax preparation or other accounting-related job -- if you can't keep your own taxes straight, I would be hesitant to put you in charge of my company's financial recordkeeping and calculations.
For any non-financial positions, I wouldn't care.
Most people despise the IRS and will give you the benefit of the doubt if you have any trouble with them. The smaller the business, the more likely they are to despise the IRS.
posted by Jacqueline at 12:28 PM on November 24, 2009
For any non-financial positions, I wouldn't care.
Most people despise the IRS and will give you the benefit of the doubt if you have any trouble with them. The smaller the business, the more likely they are to despise the IRS.
posted by Jacqueline at 12:28 PM on November 24, 2009
I've owed the IRS twice (just paid them off last month!) and it has never showed up on my credit. I've had a 4 month payment plan and a year payment plan. Are you writing them a check for $X every month, or have they taken action like wage garnishing and selling your assets?
Just writing checks, you have nothing to worry about. You can't even check the balance you owe them over the phone without a pin number and a bunch of private information.
posted by caveat at 3:07 PM on November 24, 2009
Just writing checks, you have nothing to worry about. You can't even check the balance you owe them over the phone without a pin number and a bunch of private information.
posted by caveat at 3:07 PM on November 24, 2009
Nthing that this is no big deal and almost certainly (but check! it's free!) does not show up on your credit report.
Where IRS activity does show up is when the debt is so outstanding that they hit you with a lien or garnishment. Those will definitely be red flags for employers who are looking for them (red flags). But a payment plan? There's actually a form for that, it's so common.
Now, if you intend to keep freelancing or find yourself doing it again, it's always smart to keep a running tab so you have a good idea what you're going to owe the IRS, and in fact you're supposed to be paying quarterly taxes (it's the equivalent of withholding because you aren't an employee getting a paycheck) via 1040-ES. There are of course many circumstances where there's no penalty for not filing your quarterlies, especially if your income remains within a certain range of the year before. But it's still smart to do it, as you discovered. Business owners will tell you that the wisest way to handle it is to "pay the IRS first", that is, set aside a particular savings account or at least a virtual account in your Quicken/etc. so that you don't spend it, and add 10-15% to it each time your clients pay you. That way when you file you can just write the check and be done with it. If you've done this, as well, the penalties for being off at the end of the year are small to nonexistent. It's very hard to have a big sum of cash sitting in a liquid account waiting for you to file, but it's easier if you do it four times a year and it never gets four times as large.
By the way, you can (and should!) still write off your business expenses regardless of whether you incorporate. Just make sure you use the long form Schedule C. The real advantage of write-offs for most freelancers -- who don't have inventory or even much leasing expenses -- is depreciating equipment purchases and car mileage, not to mention the popular but tricky home office deduction. In a pinch you can depreciate something like a new computer (or infamously, an SUV) all at once, although this only helps you in one particular tax year (this is a trick you might want to use if you go "just over" a tax rate threshold). Anyway, there are whole books on this.
posted by dhartung at 6:38 PM on November 24, 2009
Where IRS activity does show up is when the debt is so outstanding that they hit you with a lien or garnishment. Those will definitely be red flags for employers who are looking for them (red flags). But a payment plan? There's actually a form for that, it's so common.
Now, if you intend to keep freelancing or find yourself doing it again, it's always smart to keep a running tab so you have a good idea what you're going to owe the IRS, and in fact you're supposed to be paying quarterly taxes (it's the equivalent of withholding because you aren't an employee getting a paycheck) via 1040-ES. There are of course many circumstances where there's no penalty for not filing your quarterlies, especially if your income remains within a certain range of the year before. But it's still smart to do it, as you discovered. Business owners will tell you that the wisest way to handle it is to "pay the IRS first", that is, set aside a particular savings account or at least a virtual account in your Quicken/etc. so that you don't spend it, and add 10-15% to it each time your clients pay you. That way when you file you can just write the check and be done with it. If you've done this, as well, the penalties for being off at the end of the year are small to nonexistent. It's very hard to have a big sum of cash sitting in a liquid account waiting for you to file, but it's easier if you do it four times a year and it never gets four times as large.
By the way, you can (and should!) still write off your business expenses regardless of whether you incorporate. Just make sure you use the long form Schedule C. The real advantage of write-offs for most freelancers -- who don't have inventory or even much leasing expenses -- is depreciating equipment purchases and car mileage, not to mention the popular but tricky home office deduction. In a pinch you can depreciate something like a new computer (or infamously, an SUV) all at once, although this only helps you in one particular tax year (this is a trick you might want to use if you go "just over" a tax rate threshold). Anyway, there are whole books on this.
posted by dhartung at 6:38 PM on November 24, 2009
This thread is closed to new comments.
As for settling the IRS debt immediately by taking out a loan: if the interest rate on the loan is less than that being charged by the IRS, then yes, that's a good idea.
posted by dfriedman at 8:50 AM on November 24, 2009