Another bill, oh no! It doesn’t feel great to file your tax return and find out you owe money. It’s like heading out the door and discovering your car won’t start! But don’t worry, you actually have several options if you owe money on your taxes. Here is some information to help decide which option is best for you.
What Are Your Options for Paying?
- Extension of time to pay
- Installment agreement
- Offer in Compromise (OIC)
- Temporarily delay the collection process
Request an Extension of Time to Pay
If you are unable to pay your tax bill because of temporary factors, you can file your tax return, then request an extension of time to pay. This extension will get you up to 120 days to make the payment. There are no fees to get the payment extension, but interest and penalties will apply to the full taxes you owe until it’s paid. The cost is usually less than an installment agreement though. You can request an extension to pay your taxes by calling the IRS directly at 800-829-1040.
You may also qualify for an extension through Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. Don’t forget, in order to get either extension, you must file your income tax return in a timely fashion by the tax deadline, which was April 15. The payment extension will not apply if your tax return is not filed or if it has been filed late.
Request an Installment Agreement
Probably the most common way to handle a tax bill that you can’t pay immediately is to set up an installment agreement which allows you to pay your tax debt over six years. You can request consideration for an installment agreement either by requesting an installment agreement when you file with TurboTax or by filing IRS Form 9465, Installment Agreement Request, and mailing it into the IRS (we recommend filling it out online).
Here’s the process of making the request:
- If you have not filed your tax return yet, you may submit Form 9465 when you file your taxes online.
- If you have filed your tax return, and cannot pay in full and the IRS has not yet issued you a bill (a balance due notice), you may request a pre-assessment installment agreement on current tax liabilities.
- If you have filed your tax return and you cannot provide full payment after receiving a bill from the IRS, you may request an installment agreement using the Online Payment Agreement Application.
- You may also request an installment agreement by calling the toll-free number on your bill or if you do not have a bill, call the IRS at 800-829-1040 (individuals) or 800-829-4933 (businesses).
The IRS will typically respond to your request for an installment agreement within 30 days of your application or phone call. The IRS offers several convenient ways to make your 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)
There is a one-time installment agreement user fee of up to $225 to initiate the standard installment agreement, or a payroll deduction installment agreement, which varies based on what method you use to pay. However, if you set the payments to be direct debited from your bank account, the user fee is $31. If you set up an installment agreement using the agency’s Online Payment Agreement application you will pay a fee of $149. If you are applying to restructure or reinstate an existing installment agreement, the fee is $89.
Your monthly installment payment should be based on your ability to afford the payments, that way you don’t default on the agreement. You have to specify the monthly amount, as well as the day of each month that the payment will be made (it can be anywhere between the 1st and the 28th of the month). Payments must be mailed in at least 10 days in advance of the due date, in order to make sure that the payment isn’t late, which will cause an automatic default in your agreement.
Offer In Compromise
Offers in Compromise require a $186 application fee. Exception: If you are an individual and meet the Low-Income Certification guidelines, you are not required to send any money with your offer. If your inability to pay your tax bill is due to permanent factors, such as a 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 in which you will pay a reduced amount of the taxes you owe, which the IRS agrees to accept as full payment of the obligation. In order to be considered for an OIC, all filing and payment requirements have to be current. In addition, if you are in bankruptcy proceedings, you are not eligible for OIC.
Temporarily Delay the Collection Process
This is the type of agreement you may need in the event that you will have no ability to pay your full tax liability in the foreseeable future (as opposed to a short term hardship). If you cannot pay any of your tax debt, then 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 does not mean the debt goes away, it means the IRS has determined you cannot afford to pay the debt at this time. Prior to 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 (this may include information about your assets, monthly income, and expenses).
Whichever method you choose, get the process started as soon as possible and don’t hesitate to communicate with the IRS to let them know your situation.
Don’t worry about knowing these tax laws. TurboTax has you covered and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.
*Victims of the more recent California Wildfires beginning on November 8th are granted extended tax deadlines. This includes the 2018 individual income tax filing deadline and payments which would have been due on April 15, 2019, but have now been extended to April 30, 2019, for qualified individuals. If you were a victim of the recent California Wildfires and pay quarterly estimated income tax payments due on Jan. 15, 2019 and April 15, 2019, you will also receive an extension to pay until April 30, 2019.