Taxpayers who owe taxes may be relieved to know that there are some options for those who owe and cannot afford to pay the full amount right away. Following are some things to know if you need more time to pay your taxes.
- To begin with, if you are unable to pay all your taxes that are due, it still is helpful to pay as much as you can afford. By paying as much as possible currently, the total amount of interest and penalties owed will be less. If paying by check or money order, it is important to send the payment to the correct IRS office, to properly designate the tax year and tax form for which payment is being made, as well as to properly include the primary taxpayer’s social security number or taxpayer identification number on the payment.
- Based on the circumstances, a taxpayer can qualify for an extension of time to pay, an Installment Agreement, temporary delay of the payment, or an Offer in Compromise.
- If you cannot pay the full amount, you immediately should consult with a professional tax advisor to determine your options, or at a minimum, call the number or write to the address on the IRS bill you receive. Delay in dealing with the unpaid amount can make the problem worse since the IRS might begin to take more severe collection actions that can be far less favorable than other alternatives that might be available to you.
- If possible, you may want to consider financing the full payment of your tax liability through a loan. The interest rate and fees charged by a bank or other lender might be lower than the amount of interest and penalties imposed by the Internal Revenue Code. Payment on a credit card also is an option, but should be done only after careful consideration of the fees and interest that will assessed on such credit card account as compared to the interest and late fees collectible from the IRS. Consideration also should take into account the possibility of the discharge of credit card debt in bankruptcy versus possible discharge of IRS income tax debts in bankruptcy.
- If you cannot pay the taxes in full immediately, you may qualify for a short amount of additional time—up to 120 days—to pay in full. Generally no fee is charged for this type of payment arrangement and this option may minimize the amount of penalties and interest you incur. Note that interest on any unpaid amount will continue to accrue during this period.
- You also might want to consider an Installment Agreement. This arrangement allows you to make monthly payments after a one-time fee of $105 is paid. If you choose to pay through a Direct Debit from your bank account, the fee is reduced to $52. Lower-income taxpayers can qualify for a reduced fee of $43. To apply for an Installment Agreement, you can use the Online Payment Agreement application available on the IRS website (see link below); file a IRS Form 9465, Installment Agreement Request (see link below); or call the IRS at the telephone number shown on your bill. A professional tax advisor or tax preparer also can assist you with the preparation of an Installment Agreement.
- In some cases, a taxpayer might qualify for an Offer in Compromise, an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. Generally, the IRS will require complete and detailed financial records (including recent income and expense records) before it will agree to compromise a tax debt. Taxpayers should consult with a tax professional to learn more about the Offer in Compromise process, including the associated fees and forms to submit an application for an Offer in Compromise.
- Even if you set up an installment agreement, the IRS still can file a Notice of Federal Tax Lien to secure the government’s interest until you make the final payment. This generally would mean a notice is filed in your County of residence, and likely in any other jurisdiction where you own or hold a real property interest. Such notice often will prevent the sale of any property which is subject to the lien, until the lien is either satisfied, or unless and until the government agrees to release or withdraw the lien notice. The notice of lien also generally will appear on the taxpayer’s credit report.
- It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is allowed to take collection action, which action often is more severe than one of the alternate arrangements.
For more information on the IRS collection process, go to www.IRS.gov or see IRS Publication 594, The IRS Collection Process (see link below). To obtain additional information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.
- Payment Options – Ways To Make a Payment
- Other Ways to Resolve Tax Debt That Could Save You Money
- Online Payment Agreement Application
- Form 9465, Installment Agreement Request
- Publication 966, The Secure Way to Pay Your Federal Taxes
- Publication 594, The IRS Collection Process