The tax deadline for individuals has officially been moved to May 17th this year. You may have a little extra time to complete your tax return. But what if in that time, you find out unexpectedly that you owe Uncle Sam? If you owe the IRS, there are several things you can do. We’re going to break down what your options are, what to be aware of, and how you can prepare moving forward.
File and make a payment
The best and easiest option is to file your tax return by the deadline and make your payment if you owe tIRS. You can even pay online using your bank account for free or use your credit card, though it’s important to note there is a fee to do that. You can also send a check.
This is ideally what the IRS wants you to do. If you’re running behind with your tax return, it is possible to request an extension. You’ll need to file for an extension before the tax deadline.
You can use Form 4868 to apply for an extension until the 15th of October. But one important thing to note is that if you file a tax extension, you don’t get an extension for payment if you owe the IRS.
- An extension of time to file your return does not grant you any extension of time to pay your taxes.
- You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties.
But what if you can’t pay?! You don’t need to freak out but you will need to take action. Here are a few options you have.
Get a short-term payment plan
You may be able to qualify for a short-term payment plan where you can get 180 days or about six months to pay your tax liability in full. The first thing you need to do is to apply for an Online Payment Plan. You can also call 800-829-1040.
According to the IRS site, you can be granted up to 120 days at a time. So if you need more time to pay, get started now. It’s important to note that you are still liable for any interest and tax penalties that may accrue during this time.
Take advantage of Installment Agreements
If you think it’ll take longer than six months to pay your taxes, you might want to look into an Installment Agreement with the IRS.
This type of payment option allows taxpayers to make payments over a matter of months. Payment can be made via direct deposit, payroll deduction, credit card, cash, and check.
Under this option, the IRS does charge a fee. Low-income taxpayers may be able to get the fee waived or lowered, depending on their situation.
Fees can range between $31 to $225 depending on the plan and how you file. It’s more affordable to apply online compared to phone, in-person, or mail.
The IRS website suggests, “Before your payment plan request can be considered, you must be current on all filing and payment requirements. Taxpayers in an open bankruptcy proceeding aren’t generally eligible. You must specify the amount you can pay and the day of the month (1st through 28th). If you owe the IRS, your payment must be received by the IRS on your due date. If you plan on mailing your payment, consider mailing time when you select a payment day.”
The key is to apply on time and keep up-to-date with your payment requirements.
Offer in Compromise
Another option to consider is an Offer in Compromise (OIC). You must see if you qualify first using the Offer in Compromise Pre-Qualifier. If you’re in the middle of bankruptcy, unfortunately, you won’t be eligible.
Temporary Delay Collection
If you are experiencing financial hardship and can’t pay anything, the IRS may decide to delay collection. According to the IRS website, “If the IRS determines that you can’t pay any of your tax debt because of financial hardship, the IRS may temporarily delay collection by reporting your account as currently not collectible until your financial condition improves.”
This doesn’t eliminate the debt, it simply pauses any collection of the tax debt. In order to qualify, the IRS may require a Collection Information Statement. You may need to provide information about your income and expenses. It’s also important to note that interest and penalties will continue to accrue.
Tax time can come with a lot of stress especially if you owe the IRS and can’t pay. The worst thing you can do is not to do anything at all. The best thing you can do is to file on time and pay right away.
But if you can’t, then use one of these payment options through the IRS to make sure you’re in good standing. Just be aware of the interest, penalties, and paperwork required to move forward and any new deadlines (such as October 15th for an extension).
To get started, fill out any of the necessary Forms and if you need support, you can call the IRS at 800-829-1040 for tax return extension assistance.
In order to avoid this situation in the future, you may want to look into working with an accountant or CPA. An accountant or CPA can help make sure that you’re getting the most out of your tax return and help you pay any estimates as required and help you try to avoid or prepare for any future tax payments.