As a lot as we’d wish to, generally it simply isn’t doable to pay your complete tax invoice all of sudden, particularly when you owe just a few thousand {dollars}. Borrowing cash from a financial institution or relations might not be an choice.
If you happen to can’t meet your tax invoice obligation, what are you able to do to keep away from wage garnishment by the IRS?
It’d sound stunning, however the IRS has a comparatively taxpayer-friendly fee plan. If that wasn’t sufficient to make you ask which universe that is true in, most individuals will really qualify for the plan.
For these of us who’re unfortunate sufficient to fall into the 21% who will owe taxes this yr (in keeping with Forbes), the IRS’ fee plan generally is a good choice for paying down a big tax invoice.
Forms of Funds Plans
For people, the IRS has two funds plans. One is long-term and the opposite is short-term. There are literally two long-term choices — one with automated withdrawals and the opposite with out.
Brief-Time period Cost Plan
If you happen to owe lower than $100,000 and will pay your tax invoice in 120 days or much less, there gained’t be any setup price to your fee plan. Curiosity and penalties will nonetheless accrue. You may pay with automated funds utilizing your checking account, examine, debit card, or bank card.
You’ll incur extra charges when utilizing playing cards.
Lengthy-Time period Cost Plan with Computerized Withdrawals
Lengthy-term plans are for taxes owed of lower than $50,000 and paying over a interval that’s longer than 120 days. Lengthy-term fee plans have setup charges. These charges could be waived for low-income earners. The price for this plan is $31. Cost is completed by direct debit.
Lengthy-Time period Cost Plan with out Computerized Withdrawals
This plan is for these owing lower than $50,000 and needing greater than 120 days to pay their tax invoice. If for no matter motive you’ll be able to’t use direct debit and would somewhat pay by examine, card, or cash order, that is the fee plan you’ll need to select.
For that comfort, you’ll pay a setup price of $149 as an alternative of $31. Ensure the non-direct debit choice is well worth the $118 additional. Low-income earners pays a setup price of $43, however could have it waived in the event that they meet sure situations.
Charges and Curiosity
An installment plan means you have got filed your return however did not pay. You’ll incur a penalty for failing to pay on time and curiosity might be due quantity on the quantity owed.
Penalties
If you happen to don’t pay in full by April 15 and are accepted into an installment settlement, you’ll pay a 0.5% penalty on the quantity not paid. If you happen to owe $1,000, that’s a $5 penalty.
You’ll additionally pay 0.25% every month on the unpaid steadiness. Let’s say on $1,000 you arrange an installment plan to pay $100 every month. After the primary fee, the steadiness is $900. Curiosity on this quantity might be $2.25.
Curiosity
Along with penalties, you’ll additionally pay curiosity on any unpaid taxes and penalties. The rate of interest adjusts each three months. The rate of interest is the federal price plus 3%. If the federal price is 2%, the rate of interest might be 5%.
Setting Up Your Cost Plan
You may apply for an installment plan on-line on the IRS web site: https://www.irs.gov/funds/online-payment-agreement-application. If you happen to owe lower than $10,000, your plan will routinely be accepted when you additionally meet the next situations:
- Over the past 5 years, you and your partner submitting collectively don’t owe taxes, haven’t entered into an installment settlement, and have filed on time.
- You’ll pay due taxes in three years and adjust to all tax legal guidelines.
- You’re not financially capable of pay your taxes. Even when you will pay your taxes, an installment settlement continues to be authorized when you owe lower than $10,000 and meet different standards.
If you happen to had an installment settlement through the earlier yr, it wouldn’t stop you from getting into into one other installment settlement for the subsequent tax yr so long as you’ve paid the installment in full earlier than taxes are due.
An installment plan with the IRS can lead to excessive charges, however the sooner it’s paid off, the less charges you’ll pay. If you happen to can repay your taxes due in 120 days, you gained’t incur a setup price. That’s an additional 4 months to pay your invoice.
Penalties and curiosity will nonetheless accrue on the unpaid steadiness. As a final resort, you’ll be able to pay the installment previous 120 days, however that is the most costly choice.
Additionally, attempt to have it paid earlier than April 15 of the subsequent yr otherwise you’ll have problem making an attempt to arrange a brand new installment plan.
Last Ideas
Whereas proudly owning cash to the IRS is not a great factor, organising a fee plan is a great transfer. Moreover, be sure you file your taxes on time to keep away from much more penalties.
Absolutely the worst factor you are able to do is solely ignore it or keep away from it as a result of you’ll be able to’t pay. They solely factor that may come of that’s owing extra money sooner or later, or worse – you would really go to jail. Now, that is uncommon, however actually, do not mess with the IRS!