There is no shortage of ways to get into debt, but the cost and process of paying off what you owe varies based on what type of debt you have. Taxes, which you incur simply by earning money, represent just one specific type of debt. Non-tax debt comprises all other types of debt, though it sometimes refers specifically to government debt.
General Definition
The general definition of non-tax debt is any money you legally owe that is not to a government taxation agency. This means that everything from credit cards and medical bills to student loans, auto loans, mortgages and fines are all types of non-tax debt. Non-tax debt comprises a much larger portion of what most people owe than tax debt, especially since tax debt is lessened by paycheck deductions and due every year, allowing taxpayers to start incurring new tax debt again without carrying over past tax debt in most cases.
Specific Uses
In some more specific cases, the term non-tax debt refers to any money an individual or business owes the federal government that it does not owe to the Internal Revenue Service as taxes or tax-related fees. This usage of non-tax debt includes only certain types of loans and fines, including direct student loans and federal fines imposed on individuals and corporations for violating laws or industry regulations.
Financial Management Service
The Financial Management Service is a branch of the United States Treasury that deals with non-tax government debt. Rather than requiring the Internal Revenue Service to collect other money that people owe the government, the federal government began this service back in 1940. The Financial Management Service also makes payments on behalf of the federal government, including Social Security benefits. If you owe the government non-tax money, you generally pay the Financial Management Service.
Significance
Besides knowing who to send your loan payments to, there are several cases where it's important to distinguish between non-tax debt and other forms of debt. For example, in a personal bankruptcy case, the court can only dismiss certain types of debt. Some non-tax debt, such as student loans, are exempt from being discharged. Non-tax debts that fall under the general definition, such as credit card debt and a mortgage loan, are eligible for reorganization or discharge. Different types of debt may also weigh differently on a business's credit rating or its financial evaluation by investors.
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