Tax season can be a bit of a drag if you have paid too little to Uncle Sam throughout the year. Withholding too little from W2 income, not calculating self-employment tax burdens, or skipping quarterly payments due on additional earned income can create a situation where you owe money to the IRS. In some cases, that liability is far more than anticipated, making it difficult to make ends meet. If you owe more than you can pay on your federal income tax this year, don’t worry; the IRS has options for you.
If you are facing a significant tax bill that you cannot easily pay in full, the IRS allows eligible taxpayers the ability to create an installment payment plan to take care of the balance over time. Individuals who qualify for an installment plan with the IRS include:
By setting up an installment plan for taxes owed, you avoid penalties and interest assessed on an unpaid tax bill. In most cases, the IRS allows you to determine how much you can pay each month toward the installment loan, and a lump sum payment can be submitted at any time during the installment period to satisfy the balance. To establish an installment payment plan with the IRS, you can apply online, by calling 1-800-829-1040, or by completing and mailing the Installment Agreement Request form.
For those struggling to manage an IRS tax bill, there is an alternative to an installment loan known as an offer in compromise. Through this solution, taxpayers can settle a tax debt for less than the total amount owed if paying the full amount would create a financial hardship. Either a lump sum payment or a payment plan can be created to satisfy the lowered tax bill. The IRS carefully considers offers in compromise based on one’s ability to pay, total income, monthly expenses, and assets. Individuals are eligible for an offer in compromise when all required tax filing and past payments are satisfied, and when the individual is not in bankruptcy. To begin the process of an offer in compromise, there are several forms that must be completed, found here.
If you are finding it difficult to maintain on-time payments for a repayment plan with the IRS, it is in your best interest to contact the agency directly. Despite its ominous presence, the IRS is willing and able to work with you to find a solution that meets your needs without putting you in the poorhouse.
Sticking your head in the sand when it comes to paying taxes due is not the answer. Take charge of your financial situation by working with the IRS to come up with a plan that fits your budget. Whether that is an installment loan, settlement, or an alternative plan, know that any agreement to pay is better than avoiding the problem.
Get hot tips, exclusive deals and the latest news sent directly to you.