What to Do If You Owe Taxes to the IRS
So you filed your tax returns and discovered that you owe tax money to Uncle Sam. Now what? Whether you can afford to pay the balance in full now or you need some time to pay, below are your different payment options.
When You Need More Time
If you owe more taxes to the IRS than you can currently afford, don’t avoid the bill – you’ll face a 0.5 percent penalty each month until you pay in full. That percentage might not sound too awful, but it could reach a maximum of 25 percent of what you owe. Apply for an installment plan with an Installment Agreement Request (Form 9465), which can be found on the agency’s website.
The IRS offers two types of installment plans: a short-term plan (less than 120 days) and a long-term plan (more than 120 days). The agency will evaluate your specific tax circumstance and the amount you owe to determine which plan you qualify for. Both plans will include fees and interest.
Another option is to request a temporary delay in payment from the IRS. You may be required to fill out a Collection Information Statement form and provide personal financial information. Penalties and interest on your tax debt will apply until the balance is paid in full.
Finally, you could offer a compromise to settle your tax debt for less than the full amount, but the IRS encourages taxpayers to consider the other payment options before approaching the agency with an Offer in Compromise. The IRS will review your tax situation, and you’ll likely need to hand over loads of financial documentation so the agency can review your income, expenses, ability to pay, and asset equity. Keep in mind that interest continues accruing during the negotiation process.
If You Have the Funds to Pay Now
If you’re ready to pay your tax bill now, there are numerous ways to do so, including:
- Automatic withdrawal from a bank account. Choose the e-pay option when you or your tax professional e-file your returns.
- Online through the IRS’s Direct Pay service on its website. This no-fee service withdraws the funds from your checking or savings account. You can track your payment through email notifications or by using the “Look Up a Payment” tool on the website.
- With a debit or credit card. Pay online or by phone using one of the three third-party processors on the IRS’s website under “Pay by Debit or Credit Card”. They all charge a small convenience fee, and your credit card may charge a small processing fee as well.
- By check or money order. Payable to the U.S. Treasury, your check should include the following information in the memo field: your phone number, Social Security number or employer identification number, tax year, and related tax form or notice number. Send your check with a Form 1040-V, which is a payment voucher found on the IRS website, but don’t paperclip or staple your check to the voucher. You’ll find the correct mailing address for your check on page two of Form 1040-V.
- Wire transfer. If you’re pressed for time, some banks offer same-day wire for your tax payment. Be sure to inquire about fees and cut-off times for this service.
- Face to face. If you prefer to hand deliver your payment to the IRS, you can do so at your local IRS Taxpayer Assistance Center, which can be located through the IRS website. Assistance, including processing payment, is by appointment only.
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