What you should know if you can’t pay your taxes
When you submit your taxes, you owe the government money using tax software, paper filing, or an accountant. After inputting all your numbers, you’re slammed with the news you’ve been dreading. You lack the cash to repay them and are seeking solutions to settle your tax burden.
Fortunately, the IRS accepts various payment options, from paper checks to debit and credit cards. When paying taxes with a credit card, include all costs. But what if you can’t afford to pay your tax obligation?
Paying your taxes over time
Even if you’re concerned about your ability to pay your taxes, it’s best to file and set up a payment plan than to skip filing altogether. Stalling your payments will, in most cases, result in additional interest and fines.
Short-term payment plan fees (180 days or less)
After enrolling in a short-term payment plan, you can pay the amount outstanding immediately from your bank account or by check, money order, or debit/credit card. Here are the fees associated with the short-term payment plan:
- Apply online with no setup fees (individuals only)
- Plus, accumulated penalties and interest until the debt is paid in full.
In addition, applying can be done quickly by phone, mail, or in person: There is no startup cost (up to 180 days), and there is no real need to contact any tax professional in the case of a 180-day debt repayment plan.
Payment Plans (Installment Agreements)
If you cannot pay your balance in full within 180 days, you may be eligible for a monthly payment plan (including an installment agreement). To seek a payment plan, fill out the OPA application, Form 9465, Installment Agreement Request, and submit it to the IRS. A payment plan permits you to make month-to-month payments in stages over six years. The IRS provides many methods for making monthly payments, including:
- Payment with credit card or debit card through phone or Internet
- Payment via cheque or money order
- Direct deduction from your bank account
- Employer payroll deduction
- Payment using EFTPS
The official website of the IRS notes that payroll deduction and direct debit installment agreements let you make on-time payments automatically and lower your risk of default. You may also save time and money by using these convenient payment options instead of sending monthly checks or making monthly electronic payments. Additionally, the IRS assesses a user fee when you enroll in a payment plan; however, if you are a low-income taxpayer, this user cost is diminished and, under some circumstances, may even be eliminated or repaid.
It would be best if you were up-to-date with all filing and payment obligations before the IRS may consider your payment plan request. Taxpayers who are involved in an ongoing bankruptcy action are typically ineligible. In addition, you must state the amount you are willing to pay and the day of the month. The IRS must receive your payment on the due date. When choosing a payment day, keep mailing time in mind. OPA will make an instant decision on your requested payment arrangement.
Offer in Compromise
An Offer in Compromise (OIC) is a contract between you and the IRS that settles your tax debt by paying a lesser agreed-upon sum. Before the IRS considers an OIC, you must have filed all tax returns, received a bill for at least a part of the tax debts included in the offer, and have made all necessary quarterly payments for the current year, and made all required federal tax deposits for the latest quarter and the two preceding quarters if you own a business with employees. You cannot enter into an OIC if you are involved in an ongoing bankruptcy action. The IRS has made a special tool to check the eligibility for an Offer in Compromise. Want to solve your back taxes with an offer of compromise? Visit Idealtax.com for more information.
Temporarily Delay Collection
If you can’t pay any of the amount owed because doing so would prohibit you from meeting your essential living needs, you can ask the IRS to postpone collection until you can. Suppose the IRS judges that you cannot pay any portion of your tax liability due to financial hardship. In that case, the IRS may temporarily postpone collection by listing your account as presently not collectible until your financial situation improves. The fact that the debt is now uncollectible does not indicate that it will disappear. It means the IRS has judged you are unable to pay the obligation at this time. Before we approve your request to postpone the collection, we may require you to submit a Collection Information Statement and show verification of your financial situation, including a financial budget.
You should be aware that if the IRS fails to collect from you, your debt will accrue additional penalties and interest up to the maximum permitted by law until it is paid in full. We will assess your capacity to pay once more during the brief wait. In addition, the IRS may temporarily halt particular collection efforts, such as placing a levy, while your financial situation improves.
Pay what you can
If you read the last paragraph, you’ll probably get the gist: no matter how much you owe, you should try to file on time or submit an extension if you can’t. Filing an extension gives you more time to submit your taxes rather than more time to pay your debt, but failing to obtain an extension might result in severe penalties and accrued interest.
If you don’t pay your taxes, the IRS will charge you interest on the amount you owe. As a result, you will not be able to pay your entire tax bill by paying a portion of it. By asking for an extension or simply paying the amount you can afford, you may reduce the interest you will have to spend on the remainder of your due taxes.
