Six tips for taxpayers who owe money to the IRSPosted: Updated:
The deadline for tax season is here. While some Americans receive a nice check from the government, others find themselves paying back taxes. Over half (53%) of Americans will owe federal income taxes, according to the estimates by the Tax Policy Center.
If you find that you will owe taxes and are not sure how you will pay, the financial educators at Money Management International, offer the following advice on how to pay IRS taxes.
Consider an installment plan. The IRS offers an installment agreement for taxpayers who owe $25,000 or less in back taxes. For a fee, you can arrange to make monthly payments of a certain amount (depending on the debt amount), but it must be enough to pay off the entire amount owed in a period of less than five years. Please be aware that the installment plan includes a penalty fee and interest. To set up your installment plan complete the Online Payment Agreement Application.
Pay what you can. The IRS encourages taxpayers, who may be unable to pay the total amount, to pay as much as possible. Paying down your debt will reduce the amount of penalties and interest owed. If this is your situation, contact the IRS as soon as possible; they may be willing to offer you a short term (60-120 days) repayment plan.
File an extension. If you cannot file by April 15, you can request an extension of 6 months to file. While this may buy you some time, this extension does not extend your time to pay any taxes owed; interest and penalties will be applied to any overdue tax debt. To request an extension, file an Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.
Pay on time. In addition to a failure-to-pay penalty, the IRS currently charges an interest rate of 4% on late payments (subject to change quarterly).
Use a credit card. As a last resort, you may charge your back taxes on a credit card by contacting a service provider approved by the IRS. Only consider this option if you have favorable repayment terms and a plan for payoff. You don’t want to compound the problem by taking on more credit card debt than you can handle. For help on paying off credit card debt, visit www.financialliteracymonth.com.
Change your W-4. Contact your company’s personnel department to reduce the number of exemptions or have extra money withheld so that you won’t be hit with the same surprise next year.
To make filing your taxes easier, consider using the Electronic Federal Tax Payment System (EFTPS). The EFTPS enables tax preparers, businesses and individuals to pay federal taxes electronically using a variety of payment methods. For more information about this free service, visit www.eftps.gov.