Relief if You Filed on Time but Can’t Pay Your Taxes

Tax Planning

You made the tax deadline, but your tax debt may still linger on.   Well, at least you filed and avoided the most hefty tax penalty, failure-to-file.  You might be scrambling to figure out how you’ll be able to pay what you owe after receiving your final tax bill from the IRS.

Whew! What a relief.

Fortunately, you’re not alone. This is a scenario that affects many people and the IRS understands that sometimes reality interferes with your ability to pay. There are options available to you if you are unable to pay and many are quite reasonable. We’ll go through some of the best options if you can’t pay.

Installment Agreement

The IRS offers installment plans that can help you break up what you owe into more manageable payments over time. You can apply online if owe less than $50,000 in combined taxes, penalties, and interest. You specify how much you can pay, how often you can make payments, and specify all that on an application. The IRS will now allow up to 6 years to pay your tax liability if you’re on an installment agreement.  There’s an application fee involved and the interest is manageable (especially since rates are low right now) but the IRS still has to approve your application. Not everyone is approved for this.

The whole process can be completed fairly quickly if you have your Caller ID number (from the top of your tax due notice), adjusted gross income, bank address, and employer address. You will have to pay the aforementioned loan fee, and pay interest, but it’s generally much less than what you would pay if you charged your tax bill to a credit card. Even if you end up with the highest fee schedule and interest, it’ll be much less than most credit card companies, so it’s a better choice than paying with plastic.

If you’re seriously considering this, the fees are $52 for a direct debit agreement ($105 for the standard agreement or payroll deduction). It can be reduced to $43 based on income, that’s the cheapest option. It’s worth noting that many states also have installment payment options that you can take advantage of. Check with your state comptroller’s office, or tax division, and you can find out more about your options.

Request “Additional Time To Pay”

In same cases, if you can describe your situation, and if you are able to pay within 60 to 120 days, you might be able to get a little more time to make your tax payment. Call 800.829.1040 to speak to someone about this option or apply through the Online Payment Agreement application. If you can pay your tax in full within a relatively short period of time, there is a chance that you can pay less in interest and penalties.

Do not confuse this option with an “extension,” which is simply a request for additional time to file your return. Those who request an extension still have to pay any tax liability on tax day, they don’t get additional time to pay their taxes.

Offer in Compromise

You can actually offer to settle your tax obligation with the IRS by paying a percentage of what you owe. If you are having trouble paying due to income or other problems, the IRS might accept an Offer in Compromise.  The IRS usually only accepts if the offer is reasonable – and if the likelihood of collecting the whole amount in a “reasonable” period of time is rather slim.

The IRS is more flexible than you might think, as long as you are willing to meet your obligation, and can show that you need the help. Contact the IRS to work out an arrangement that makes paying your taxes a little more manageable.

If you have questions, don’t forget TurboTax has CPAs, IRS enrolled agents, and tax attorneys available to answer your questions year round.

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