Facing a tax bill is scary. If you’re employed at another person’s business and you’re not a business owner, chances are you won’t have to pay taxes. Data from 2012 to 2016 shows that just 17% of taxpayers had to pay the IRS money.
But something has changed in the last two years.
In 2017, 30% of taxpayers were projected to owe the government money, and this figure was expected to remain around the same in 2018.
If you’re one of these individuals, you may be wondering what your options are if you don’t have the money to pay your taxes.
Request an Extension
You should be filing for an extension, and if you don’t, you’ll be losing out on an added six months to complete your tax return without a failure to file penalty. You’ll be able to avoid filing, but you will still be penalized for not paying your taxes.
Failing to pay your taxes results in a 5% penalty on the balance each month.
And this figure will have a maximum cap of 25% of the balance owed. It’s better to request an extension to avoid the failure to file penalty.
The IRS Will Allow a Payment Plan
Payment plans are allowed by the IRS, but they won’t offer you a payment plan unless you ask. When you request a payment plan, the IRS will assess:
The IRS may offer you up to 72 months to pay your taxes, and this would come with the understanding that if you’re owed any refunds from the IRS, it will automatically be applied to your balance.
For example, let’s assume that you owe $10,000 to the IRS and you’re slated to receive a $3,000 refund this year. The $3,000 will go directly to the IRS to help satisfy your debt.
File Your Taxes Anyway
One mistake that a lot of people in a financial bind make is that they’ll ignore their bills. If you ignore your credit card bills, it will negatively impact your credit. But you still must acknowledge the IRS because failing to file is much worse than filing and saying “I have a bill I can’t satisfy.”
File your tax return on time. If not, you’ll be hit with a 5% interest charge every month, up to 25% of your total balance on top of your balance.
You should pay what you can. The IRS wants their money, and if you can pay $2,500 of your $10,000, it’s better than nothing. If you know that you’ll be able to pay your debt in full in 120 days, you can also enter what’s known as a full-payment agreement.
“Offer in compromise” is another option for anyone that has fallen into a substantial financial hardship.
Other options should be explored because not many people will be eligible for a compromise. A delay may be offered, or you may also ask for an installment agreement, which would allow you to make payments over 120 days with the goal of satisfying your bill.