While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once. The IRS has a number of ways for people to pay their tax bill.
The IRS has announced an effort to help struggling taxpayers get a fresh start with their tax liabilities. The goal of this effort is to help individuals and small business meet their tax obligations, without adding unnecessary burden. Specifically, the IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.
Here are ten tips for taxpayers who owe money to the IRS.
- IRS Back Tax Debt Payments: If you get a bill this summer for your late tax liability, you are expected to promptly pay your back tax owed, including any penalties and interest. If you are unable to pay the total tax liability due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
- When You Need Additional Time to Pay: You may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application.
- Can You Pay via a Credit Card: You can pay your bill with a credit card. The interest rate on a credit card will probably be lower than the combination of interest and penalties imposed by the Internal Revenue Code. Of course, many people in these economic times do not have a credit card or may not have the available credit to handle their tax liability.
- Electronic Funds Transfer: You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash.
- Installment Agreement: You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.
- Online Payment Agreement: If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using what is called a Streamlined Payment Plan. The IRS will not ask or require financial information from you. The IRS will dictate to you what the payment plan will be.
- Form 9465: You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your tax debt bill in the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request for an installment agreement is approved, denied, or if additional information is needed.
- Collection Information Statement: You may still qualify for an installment agreement if you owe more than $25,000, but you will be required to complete a Form 433-F, Collection Information Statement, before the IRS will consider an installment agreement. You will be required to show bank statements along with other information such as pay stubs.
- User Fees : If an installment agreement is approved by the IRS, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with lower incomes, the fee can be reduced to $43.
- Check Your Withholding: Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer.
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