When I was 13 years old my parents had a college savings plan set up for me. When moving from Texas to Pennsylvania, they sold some of the assets in the plan triggering a potentially taxable gain - unless the funds were moved to another college account which they immediately were. Not realizing that there were reporting requirements to show that the gain wasn't taxable because it was merely a transfer- my parents didn't send a tax form (IRS or state) to any agency.
Which meant the tax collectors started calling when I was 17 years old. I didn't know what was happening when I didn't receive my $300 refund in 2005 and 2006, but my parents wrote me a check for those amounts so I dismissed it. Behind the scenes, my dad was being a serial cheater and my stepmom was distraught about the terrible situation. My tax problems were rightfully not the forefront of their problems.
I think I became very aware of the situation when I turned 19. I had logged into the Pennsylvania tax website to find the status of my refund and learned that I had owed them 3 grand in taxes, penalties, and interest for the past 6 years. My parents, preoccupied in handling their marriage, couldn't assist me with my tax problems so I started weaving through the web of bureacracy starting with the IRS.
I think I clocked in over 48 hours of hold time and 40 minutes of talking to an actual person. No one could tell me what had happened, just the year when the problem started. Looking back I have two bits of advice for my 19 year old self. 1) Contact a tax advocacy program and 2) Download your free annual credit reports.
After graduating college, while everyone was having parties or going on vacations, I went to the IRS, the state Department of Revenue, and the local tax department to see what I needed to do. Turns out no tax returns had been filed for me EVER. I had been working since 2005 and owed 5 years of tax forms!
I filed all of the tax returns - even a blank amended return to the IRS for when I was 13. I downloaded my credit reports for the first time and realized I owed an additional 4 grand in medical bills for when I was 18 that had never been paid. Sadly, they would have been 100% covered by insurance at the time.
After all of this, I still had to go to the prothonotary court and pay $10 to get a "Tax Lien Satisfied" letter to send to credit agencies. And THEN that item would be on my credit report till 2018 - I will be 30 years old. Nothing I can do will remove it from my record till that time.
The 4 grand in medical bills that are on my credit report? Half of them will be removed this month, the other half in August - I CAN'T WAIT!
So my advice to you if you've stuck through this long sad story is this:
- Most transactions have some taxable effect, consult some tax advisor to make sure you don't have to report it to your federal, state, or local tax agencies.
- If you aren't going to pay your children's bills, please let them know so that they can make the proper arrangements because waiting 7 years to get it removed isn't easy.
- If you find yourself in trouble with taxes, contact a tax advocacy program immediately. This is one item that can have serious consquences if it shows up on a credit report - I can't even get approved for a Victoria's Secret credit card OR a secured credit card because of how terrible my credit is.
