Are you one of the millions of Americans who ended up with a tax bill instead of a refund this year? With the expiration of many COVID-19 tax relief programs, many taxpayers saw their tax refunds shrink or completely disappear. And in some cases, taxpayers received bills that were much higher than anticipated. If you’re one of the many who didn’t file on time because you can’t pay your taxes, help is available.
Ways to Pay Your Tax Bill
Although it’s too late to request a filing or payment extension, there are other ways to pay your tax bill. First, file your tax return ASAP! By missing the filing deadline, you are subject to a 5% failure-to-file penalty, which can quickly add to your tax bill. Even if you can’t pay anything, it’s better to file now and avoid the higher penalty fees. You’ll still be charged the failure-to-pay penalty, but this is much smaller (.5%). Next, it’s time to consider your payment options.
Online Payment Plan
If you’ve never missed a payment in the past and have filed as required, you will most likely qualify for an online payment plan. As the name suggests, you can apply online and receive immediate approval (if eligible) without having to call or write the IRS. There are two types of payment plans offered:
- Short-Term Payment Plan. If you owe less than $100,000 (including penalties and interest), you’ll have up to 180 days to pay off your tax debt. There is no setup fee, but penalties and interest will continue to accrue. You can make payments through Direct Pay or by check, money order, or debit/credit card.
- Long-Term Payment Plan. If you need more than 180 days to pay and owe less than $50,000, you can also apply for a long-term payment plan. Depending on how you plan to make your monthly payments, setup fees may be either $31 (automatic withdrawals) or $130 (non-direct debit).
Online payment plans are processed more quickly than requests submitted with electronically filed tax returns, even if your tax debt is not yet assessed. Low-income taxpayers may also qualify for a reduced setup fee.
Installment Agreement
If you don’t qualify for an online payment plan, the next option is to request an installment agreement (IA) by submitting Form 9465, Installment Agreement Request, or by calling 800-829-1040. The fee to apply is $107 (if making payments through direct debit) or $225 (non-direct debit).
The IRS automatically approves IA requests (Guaranteed Installment Agreement) for taxpayers who owe less than $10,000 and meet the following conditions:
- During the past 5 years, you (and your spouse, if filing jointly) have timely filed all income tax returns and paid any taxes due, and you haven’t entered into an installment agreement for the payment of income tax;
- You agree to pay your full tax debt within 3 years and comply with the tax laws while the agreement is in effect; and
- You’re financially unable to pay your tax bill in full when due.
You may also qualify for a Streamlined Installment Agreement if your tax bill is $25,000 or less, or between $25,000 and $50,000 and you agree to make payments by direct debit or payroll deduction.
Even if you do not qualify for either of these installment agreements, you may still be eligible for an installment agreement. A Notice of Federal Tax Lien determination and a collection information statement, however, may be required.
Partial Payment Installment Agreement
In cases of extreme financial hardship, it may be possible to get the IRS to accept a Partial Payment Installment Agreement (PPIA). Under this agreement, you will propose a payment amount that is less than your balance due and will not pay your balance in full by the Collection Statute Expiration Date (CSED). Additionally, you will need to complete a financial statement and supporting documentation to provide evidence of your hardship. The IRS will also file a Notice of Federal Tax Lien. The agreement is subject to change based on your future financial status.
Other Tax Relief Options
There are two other tax relief options for those who cannot pay their tax bills in full.
- Offer in Compromise (OIC). Getting the IRS to approve an OIC is much more difficult than requesting a payment plan or installment agreement. You’ll need to provide significant evidence that you are financially unable to pay your tax bill in full and the IRS has to determine that it will not be able to collect the full amount owed within the statute of limitations.
- Currently Not Collectible (CNC) Status. If your financial situation is dire and you cannot afford to make any payments toward your tax balance, the IRS may consider placing you in CNC status. This will halt all collection activities (excluding liens). Additionally, you will not be required to make any payments on your tax debt until your financial situation improves. If the statute of limitations runs out, your tax debt will be forgiven.
Both of these options involve complicated processes that most taxpayers will find overwhelming to handle on their own. We strongly encourage seeking the assistance of a licensed tax professional if you decide to move forward with either of these tax relief programs.
If you can’t pay your taxes and want to explore your options, contact Tax Defense Network for a free, no-obligation tax consultation at 855-476-6920.