Here’s what to do if you are unable to pay your tax bill
Another bill? Oh no! It’s never a good feeling to file your tax return and discover you owe money. It’s like heading out the door only to find your car won’t start!
But don’t worry, you have several options if you owe money on your taxes. Here’s some information to help you decide which option is best for you.
What Are Your Options for Paying Your Tax Bill?
Request a Short Term Payment Plan
If you can’t pay your tax bill due to temporary factors, you can file your tax return and then request an extension of time to pay. This extension gives you up to 180 days to make the payment.
There are no fees for the short term payment plan, but interest and penalties will apply to the full amount you owe until it’s paid off. You can request a short term payment plan online if you owe less than $100,000 in combined tax, penalties, and interest.
You may also qualify for an extension through Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. Remember, to get either extension, you must file your income tax return on time by the tax deadline.
Request a Long Term Installment Agreement
A common way to handle a tax bill you can’t pay immediately is to set up an installment agreement, allowing you to pay your tax debt over six years. If you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns, you can request an installment agreement online using the IRS Online Payment Agreement Application.
The IRS charges a setup fee for a long term installment agreement, and interest and penalties will apply to the taxes you owe until they’re paid off. While you’ll be charged interest and late payment penalties until the taxes are paid in full, the failure to pay rate decreases from 0.5% to 0.25% per month while your installment agreement is in effect.
The IRS typically responds to installment agreement requests within 30 days. They offer several convenient ways to make payments under an installment agreement, including:
Direct debit from your bank account
Payroll deduction from your employer
Payment via check or money order
Payment by Electronic Federal Tax Payment System (EFTPS)
Payment by credit card via phone or Internet
Payment by Online Payment Agreement (OPA)
If you apply for the installment agreement using the IRS Online Payment Agreement Application and request direct debit (automatic monthly payments) from your bank account, the setup fee is $31 if you apply online or $107 if you apply by phone, mail, or in-person.
If you set up an installment agreement with non-direct debit payments and apply online, you may be charged a $130 setup fee or $225 if you apply by phone, mail, or in-person.
If you’re applying to revise an existing installment agreement online, the fee is $10, but it’s $89 if you apply by phone, mail, or in-person.
The online request is the best route right now as you may experience delays trying to request an installment plan by mail or phone.
Your monthly installment payment should be based on your ability to afford the payments, so you don’t default on the agreement. You must specify the monthly amount and the day of each month the payment will be made (between the 1st and the 28th of the month).
Offer In Compromise
Offers in Compromise require a $205 application fee. (Exception: If you meet the Low-Income Certification guidelines, you’re not required to send any money with your offer. If your inability to pay your tax bill is due to permanent factors, such as job loss or business failure, you can request an Offer in Compromise (OIC) from the IRS.)
In an OIC, you work out an agreement with the IRS to pay a reduced amount of the taxes you owe, which the IRS agrees to accept as full payment. To be considered for an OIC, all filing and payment requirements must be current. Additionally, if you’re in bankruptcy proceedings, you’re not eligible for an OIC.
Temporarily Delay the Collection Process
This agreement may be needed if you have no ability to pay your full tax liability in the foreseeable future (as opposed to a short term hardship). If you can’t pay any of your tax debt, your account could be classified as “currently not collectible.” The IRS could then approve and temporarily delay collection until your financial condition improves.
Being currently not collectible doesn’t mean the debt goes away; it means the IRS has determined you can’t afford to pay the debt at this time. Before approving your request to delay collection, you may be asked to complete a Collection Information Statement (Form 433-F, Form 433-A, or Form 433-B) and provide proof of your financial status (including information about your assets, monthly income, and expenses).
Whichever method you choose, start the process as soon as possible, and don’t hesitate to communicate with the IRS about your situation.
Don’t worry about knowing these tax rules. No matter what moves you made last year, Osheen’s Taxes will make them count on your taxes. Whether you want to do your taxes yourself or have a Osheen’s Taxes expert file for you, we’ll ensure you get every dollar you deserve and your biggest possible refund – guaranteed.
