Millennials and Taxes

The IRS doesn’t keep track of how many millennials incur tax debt, but a survey by personal finance adviser NerdWallet found they are more afraid of filing their taxes than any other generation. Eighty percent of millennials, defined by the survey as 18 to 34 years old, fear they will make a mistake, underpaying or overpaying. 

Putting aside outright tax cheats, young workers are financially inexperienced and, increasingly, part of a gig economy—driving for Uber, funding their creative work through crowdfunding sites—that requires more care with taxes than some are able, or willing, to take. For example, people who work in contract jobs typically don't have their taxes withheld automatically and need to set up a program of quarterly estimated tax payments on their own.

Digging their tax trap deeper, fewer than 10 percent of millennials go to the IRS when they have a tax question, and only about a quarter seek help from a tax professional, the survey found, compared with 38 percent of all taxpayers who seek help from a tax pro. Instead, most young people turn to friends and family, a largely unreliable if well-meaning group. Millennial taxpayers in particular bemoan the long wait times on the phone with the IRS and the agency's weird penchant for postal mail.

"Someone facing a tax bill they can't pay can usually set up a payment agreement," IRS spokesman Eric Smith said. Indeed, even if the agency isn't so hot on the phone, it will send multiple letters urging debtors to set up plans before threatening them, if necessary, with levies and liens. Resources are available on the IRS website, agents regularly describe payment plans to those who get through on the phone, and accountants work with the agency to devise plans for their clients. 

"If you don't contact us, we can take action to collect the taxes," Smith said.

That said, millennials are less likely to own homes than generations before them, so the threat of a property lien doesn't carry the weight it might, and a change of rental address can cut the letters off altogether. 

While credit card companies collecting student debt can affect a debtor's credit scores immediately, tax debt doesn't begin to influence them unless levies and liens are issued, and enrolling in a repayment plan won't affect the scores either.

“I don’t think anyone should be afraid of the IRS, because as long as you’re talking to them, bad things don’t happen,” said Cari Weston, director of taxation for the American Institute of CPAs. 

Millennials who find themselves in debt to the agency have more constructive options than neglecting debt letters and less expensive ones than hiring a CPA. Tax tutorials are available online, and the Society of Grownups, a Brookline, Massachusetts, financial literacy group, offers two classes, “Quarterly Schmarterly” and “Get Off Your Tax.” Each costs $30. In one class, a third of those in attendance owed money to the IRS, said Jena Palisoul, director of financial planning.

"Some people get so frightened, they take no action whatsoever," she said, "and that’s the worst thing to do.”  



Complete Bloomberg article can be found at: http://www.bloomberg.com/news/articles/2016-03-24/young-broke-and-scared-of-the-irs-the-millennial-tax-trap