There are lots of reasons why people get behind on paying their federal income taxes. Major life events, hectic schedules, avoidance, or just plain not having the funds to pay taxes are just a few of the reasons. Doing nothing is not an option. If you fail to file a tax return or fail to pay the tax owed by the deadline the IRS may assess penalties.1 There is a penalty for failure to file a tax return and another for paying late, as well as interest on monies owed. The interest and penalties can add up.
Arranging an IRS Payment Plan, which allows you to pay in monthly installments rather than a lump sum, is the best solution when you are unable to pay the taxes you owe when they are due.
The IRS website, www.IRS.gov/payments, contains information on payment options.2 Most people can set up a payment plan using the Online Payment Agreement tool which they can access from the website. A payment plan is an agreement with the IRS to pay the taxes you owe within an extended timeframe.3 There are three types of payment plans: pay now (where you pay your balance in full in one payment), a short-term payment plan and a long-term payment plan.
If you owe less than $100,000 in combined tax, penalties and interest you can apply online for a short-term payment plan which extends the time you have to pay the taxes due to with 120 days. There is no set-up fee to apply for a short-term payment plan. The amount owed can be paid by automatic payments from your checking account or by check, money order or debit/credit card.4 Fees apply when using a credit card to make payments for both short-term and long-term payment plans.
If you owe $50,000 or less in combined tax, penalties and interest, and filed all required returns, you can apply online for a long-term payment plan which extends the time you have to pay the taxes due out to more than 120 days. There is a setup fee to apply for a long-term payment plan. If paying through automatic withdrawals (automatic payments from your checking account) there is a $31 setup fee when applying online, which rises to $107 if you apply by phone, mail or in person. If you choose not to pay through automatic withdrawals and instead pay by check, money order or a non-direct debit electronic method of payment the setup fee is $149 if you apply online. If you apply by phone, mail or in person the fee increases to $225. The fee is reduced for taxpayers who qualify as low income taxpayers.
If you do not want to apply for a payment plan online, you can apply by mail. You will need to complete Form 9465, Installment Agreement Request. If you owe more than $50,000, you will also need to complete Form 433F, Collection Information Statement. You can also apply in person at your local IRS office. If you apply by mail you should make voluntary payments until you are notified by mail whether the IRS has accepted your payment plan request.5
Filing online saves money and time. When you apply online you will receive immediate notification of approval on your payment plan. The link to apply for an online payment plan is https://www.irs.gov/payments/online-payment-agreement-application. You will need to input your name and address as they appear on your most recently filed tax return, a valid e-mail address, your date of birth, your filing status and your social security number (and your spouse’s if filed jointly).
Whether you file for a tax payment plan online, by mail or in person, it is important to pay the taxes you owe as soon as you are able. Don’t wait until the IRS issues a Federal Tax Lien or levy or your delinquent account is assigned to a private collection agency.
If you are experiencing serious tax debt, you should take immediate action to resolve your tax problem. The Law Offices of Peter C. Rageas can help. Our tax law firm is located in Detroit Michigan, and we help clients throughout Wayne County MI, Oakland County Michigan, and beyond. The IRS debts do require immediate action, most importantly, you should protect yourself against potential financial penalties. Contact us today and let’s begin rebuilding your financial future!
1 Payment Plans Installment Agreements, www.irs.gov
2 Important Facts about Filing Late and Paying Penalties, www.irs.gov, 4/20/2017
Important Facts about Filing Late and Paying Penalties
3,4 Additional Information on Payment Plans, www.irs.gov, 10/3/2018
5 The IRS Collection Process, Publication 594, www.irs.gov