What If I Can’t Pay My Tax Bill? Understanding Your Options & Getting Help

The April 15th deadline for filing your annual federal income tax return can induce feelings of stress and anxiety in many taxpayers. Perhaps this year your financial situation has changed and you find yourself unable to pay your full tax bill on time. If so, take a deep breath – you have options. The IRS understands that circumstances arise where taxpayers legitimately can’t pay on time. They provide several forms of tax relief to fit various situations.

The most important thing is to file your tax return or extension request by the deadline, even if you can’t pay in full. This article will walk you through the different options available to taxpayers who owe back taxes, from installment plans, to settling for less than you owe, to requesting penalty abatement. With some planning and utilizing the relief programs, you can reduce additional interest and penalties, avoid collection actions, and work out a manageable payment solution.

File On Time To Avoid Failure-To-File Penalty

You must file your tax return or extension request by April 15 to avoid the failure-to-file penalty This is critical even if you do not have the funds to pay your balance due By filing on time, you prevent a failure-to-file penalty of 5% per month of unpaid tax, up to 25% of the total tax due.

To get an automatic six month extension to file until October 15, submit Form 4868. This extension provides additional time to file your tax return, but does not provide additional time to pay your taxes. An extension avoids the failure-to-file penalty, but you will still owe interest and a failure-to-pay penalty if you do not pay your tax bill by April 15.

Online Payment Plans

The IRS offers online payment plans that allow you to pay your balance due over 6-72 months. These plans can provide an affordable option and flexibility to get your tax debt resolved. Payment plans can be a better solution than high-interest credit cards or personal loans to pay the IRS.

You can apply for an online payment plan through the IRS Online Payment Agreement tool even if you have not yet received a tax bill. Online plans are generally approved quicker than submitting a form via mail. To qualify, you must not currently have an IRS installment agreement in place and owe less than $50,000 in combined taxes, interest, and penalties.

There are two main types of IRS online payment plans:

  • Short-term – For balances under $100,000, payments can be made over 120 days or less. The setup fee is $31.
  • Long-term – For balances under $50,000, payments can be made over 72 months. The setup fee is $149 for a direct debit agreement, or $225 for a non-direct debit agreement.

The setup fees for direct debit agreements can be reduced for low income taxpayers. Online payment agreements can provide significant savings compared to installment agreements submitted on paper via mail.

Offers in Compromise

If you owe a substantial amount to the IRS and truly cannot pay your tax liability in full, you may qualify for an Offer in Compromise (OIC). An OIC allows you to settle your tax debt for less than the full amount you owe. The IRS may accept an offer if there is doubt as to the actual tax liability, doubt as to collectibility of the full liability, or economic hardship conditions.

The IRS will look at your unique set of facts and circumstances to determine if it is in the best interest of both you and the IRS to accept a settlement. This program provides a “fresh start” to taxpayers burdened with debts they could never dream of paying in full.

Offers can be made on the following grounds:

  • Doubt as to Liability – You have a legitimate doubt that you owe part or all of the assessed tax liability. Examples may include tax bills from a deceased spouse, audit reconsiderations, or innocent spouse relief.

  • Doubt as to Collectibility – Your financial situation leaves you unable to fully pay the tax debt. This is the most common basis for an OIC.

  • Effective Tax Administration – There are special circumstances such that collecting the full liability would create an economic hardship or would be detrimental to the voluntary tax compliance going forward. This basis is only available to individual taxpayers.

You’ll need to provide detailed financial information and supporting documentation so that the IRS can fully evaluate your unique circumstances and determine an appropriate settlement. The Offer in Compromise Pre-Qualifier tool on the IRS website can assist in gauging eligibility. Consider consulting with a tax professional for assistance in preparing and submitting a compelling offer.

Penalty Abatement

If you have been assessed penalties by the IRS, you may qualify for penalty relief under the First Time Penalty Abatement rule. This allows the IRS to waive penalties for the first tax offense. To qualify, you must have:

  • Had no penalties for the preceding 3 tax years
  • Had no previous penalty abatement
  • Have filed all currently required tax returns
  • Paid or arranged to pay any tax due

You will need to demonstrate that you exercised ordinary business care and prudence in meeting your tax obligations but were unable to comply due to circumstances beyond your control. Examples of situations eligible for first time penalty relief include natural disasters, fire, death in the family, or erroneous advice from the IRS.

To request first time penalty abatement, you’ll need to submit a written statement to the IRS explaining the circumstances and the basis for your reasonable cause. Be sure to include the tax periods involved and the specific IRS penalties you are requesting to be abated.

Set Up Installment Agreement By Paper Form

If you do not qualify for an online payment plan and owe the IRS $50,000 or less in combined tax, penalties and interest, you can submit Form 9465 to set up an installment agreement. The IRS will review your request and notify you if it is approved.

With Form 9465, you may request a short-term payment plan of 120 days or fewer. The setup fee is $31. For a payment term beyond 120 days, the setup fee is $225 for any approved installment agreements entered into by paper form.

Low-income taxpayers meeting certain income thresholds can have their installment agreement user fees reduced to $43 for a direct debit agreement. Be sure to attach Form 13844 to confirm your qualifications for the reduced fee.

Important Notes on Payment Options

  • Interest continues accruing on unpaid tax balances until the debt is paid in full. The current IRS quarterly interest rate is 6% annually.

  • There is a failure-to-pay penalty of 0.5% per month up to 25% of the unpaid tax. You can request abatement of this penalty if reasonable cause is demonstrated.

  • If you enter into an installment agreement or OIC, this will temporarily suspend certain IRS enforcement actions like wage garnishment or bank levies. However, tax liens may still be filed to protect the government’s interest.

  • The IRS cannot reduce the tax you legitimately owe, but can assist taxpayers experiencing financial hardship through payment options, penalty relief, and compromise offers.

  • You can make voluntary prepayments toward your installment agreement balance anytime to pay it off earlier.

  • If you miss payments or default on your agreement, the IRS may issue a Notice of Default. You’ll have 30 days to resolve the default before they proceed with collection enforcement.

Get Help from a Tax Professional

Dealing with IRS tax debt can be scary and confusing. The rules and options available to taxpayers continue evolving each year. If you owe back taxes you cannot immediately pay in full, consider consulting a tax relief professional for assistance. They can help identify the optimal resolution for your situation. A tax expert can also handle communicating with the IRS on your behalf, and ensure proper procedures are followed to avoid costly mistakes or lost appeal rights.

The April tax deadline will arrive sooner than you think. Take proactive steps now to file your return on time, and make payment arrangements if needed. With some planning and utilizing available tax relief options, you can resolve your IRS debt in a reasonable and manageable way. Whatever your situation, don’t panic or ignore the problem. The IRS wants taxpayers to comply with filing and paying requirements, and provides relief programs to help those facing hardships. You have options – seek assistance to understand your best course of action. With a proactive approach, you can eliminate your tax troubles and enjoy peace of mind again.

What If I Can T Pay My Tax Bill

Enroll in an IRS installment plan

If you dont have the cash to pay Uncle Sam right away, the IRS has installment plans that can help. Theres no getting around interest and penalties, but youll avoid more severe consequences.

The IRSs short-term payment plan gives taxpayers up to 180 days to settle their debt. It does carry a failure-to-pay penalty of 0.5% a month and interest will accrue on what you owe until the balance reaches 25% of the total due.

You can still get on a payment plan if youre not going to have the funds within six months, but there are additional fees. And, as with a short-term plan, youll be hit with a 0.5% failure-to-pay penalty.

If you register for automatic monthly withdrawals online, there is a $31 set-up fee. If you set up direct debit over the phone, through the mail or in person, however, the fee is $107. You can opt to make regular payments yourself, but the fee is $130 if you register online or $235 over the phone, through the mail or in person.

With a long-term payment plan, you can typically set how much your monthly payment is but you must choose an amount that enables you to clear your debt in 72 months.

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What If I Can T Pay My Tax Bill

What If I Can T Pay My Tax Bill

The deadline to file your 2023 taxes is April 15, 2024. While the majority of Americans will get a refund, the percentage who will owe the IRS has been steadily rising, according to data from Civic Science, from 39% in 2021 to 43% in 2023.

Fortunately, if you cant afford to pay your tax bill you have several options, from IRS-sponsored plans to personal loans. Heres what you need to know about getting help to pay your taxes on time.

What happens if you can’t pay your tax bill?

Do I owe taxes if I can’t pay my taxes?

No, you don’t. If you can pay your taxes, but just not quite at the tax due date, here’s what you should do. File your return and pay whatever you can. The IRS will bill you for the rest. You’ll owe interest on the balance, and you might owe a late payment penalty.

What if I can’t afford to pay my taxes?

Apply for an IRS payment plan If you owe state or federal taxes and can’t afford to pay one lump sum, the best bet is to set up a payment plan, Allec said. The IRS offers a short-term payment plan that lets you pay the debt in full within six months if you owe less than $100,000 in taxes, penalties and interest combined.

Should I make a payment if I owe a tax bill?

If you cannot pay your tax bill in full by April 18, making a payment, even a partial payment, will help limit penalty and interest charges. Taxpayers who owe but cannot pay in full can apply for a payment plan at IRS.gov/”paymentplan” without waiting for a tax bill.

Can I still pay my tax bill?

Yes, You Can Still Pay Your Tax Bill. Here’s What to Do if You Can Pay in Full Most importantly, don’t skip the first tip from this CPA. Your taxes were due Monday. If you didn’t file because of a looming tax bill, it’s a good idea to file ASAP to limit any IRS late filing or late payment penalties.

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