With the pending tax deadline literally just around the corner, be sure you know and understand all the available options to you regarding tax filing and payments to the IRS. The United States Federal Government tends to frown (severely) on those who completely blow off their imposed tax deadline. It’s best to let the IRS know about your situation before you determine you just can’t and won’t file and pay your taxes.
Of course you will reduce or eliminate the amount of penalties and interest you pay and avoid the fee associated with setting up an installment agreement if you pay your tax bill in full. Sometimes, that’s just not possible.
If you cannot file your return or pay your taxes on time, there are quick and easy solutions available. You can request options online with payment plans and installment agreements that will allow you to formally recognize your debt to the IRS, and make arrangements to submit smaller monthly payments over a given period of time.
Also, tax-filing extensions are available to taxpayers who need more time to finish their returns. However, the Internal Revenue Service would remind taxpayers that this is an extension of time to file; not an extension of time to pay. Here are further details on the options available.
More Time to File
People who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to electronically request an automatic tax-filing extension on Form 4868. Filing this form gives taxpayers untilOct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.
By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance, that applies to returns filed after the deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.
More Time to Pay
Taxpayers who have finished their returns should file by the regular April 15 deadline, even if they can’t pay the full amount due. In many cases, those struggling with unpaid taxes qualify for one of several relief programs, including the following:
- Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing Form 9465.
- Some struggling taxpayers may qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov.
There are fees for setting up an installment agreement, but it depends on the plan you select:
- $52 for a direct debit agreement;
- $120 for a standard agreement or payroll deduction agreement; or
- $43 if your income is below a certain level.
Before you apply for an installment agreement, consider the following:
- File all required tax returns, on time;
- Consider other sources (loan or credit card) to pay your tax debt in full to save money;
- Determine the largest monthly payment you can make; and
- Know that your future refunds will be applied to your tax debt until it is paid in full.
Easy Ways to E-Pay
Taxpayers with a balance due now have several quick and easy ways to electronically pay what they owe. They include:
- Electronic Federal Tax Payment System. This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll or for more information, call 800-316-6541 or visit www.eftps.gov.
- Electronic funds withdrawal. E-file and e-pay in a single step.
- Credit or debit card. Both paper and electronic filers can pay their taxes by phone or online through any of several authorized credit and debit card processors. Though the IRS does not charge a fee for this service, the card processors do.
There may be a reinstatement fee if your agreement goes into default. Penalties and interest continue to accrue until your balance is paid in full. If you are in danger of defaulting on your payment agreement for any reason, contact the IRS immediately. The IRS will generally not take enforced collection actions:
- When an installment agreement is being considered;
- While an agreement is in effect;
- For 30 days after a request is rejected, or
- During the period the IRS evaluates an appeal of a rejected or terminated agreement.
Details on all filing and payment options are on IRS.gov.