So you owe the IRS? Most taxpayers have been there, done that. But what happens if you owe taxes and don’t have any money to cover what you owe? First, you need to not panic. There are options, but before you get to them, you have to ensure you file your return. If you don’t you may incur a failure-to-file penalty that will only add to your debt.
After you’ve filed your return, you need to determine how much you can afford to pay. The bigger your initial payment, the less interest you will accrue, as well as a monthly late charge. You may qualify for an extension of 120 days, depending on your financial situation, which you can request through an online application or by phone at 1-800-829-1040.
If you ignore your situation, you can expect to receive a bill for the full amount from the IRS, which initiates collection. This process can be stressful both emotionally and financially. You should file for an extension or pay your bill, but if you can’t meet your due date you have two options.
You can pay your tax bill with a credit card, which will then allow you to eliminate the late penalty. This is a great option especially if you can pay if off at the end of the month, before you incur interest from your financial institution.
If you want to pay your tax bill in installments, you should be aware that there is a fee for doing so. If you agree to direct debit, where the amount is withdrawn from your bank account, you’re looking at a $52 fee. If you opt for a standard agreement or a payroll deduction, the fee is $105. There is also a reduced fee of $43 for taxpayers below a certain income level that is calculated by the federal poverty line. In order to get the reduced fee, you’ll need to fill out an application.
You can sign up for installment payments either online or by mailing Form 9465, as long as your amount owed, including penalties and interest, is less than $25,000. If your bill is above that amount, you’ll have to call the number located on your bill to arrange payment agreements, as well as completing Form 433-F, Collection Information Statement.