Buzz
You followed our advice and filed your taxes early this year, only to find out that, surprise, you actually owe money to the government. For those who filed in the first week of tax season, tax refunds were eight percent lower compared to last year. If your tax bill is more than you can handle right now, there are several repayment options available.
The first option is to use the two months leading up to the tax deadline to gather the necessary funds to cover your bill. CNBC reports:
If you owe and don’t file, you may face the IRS’s failure-to-file penalty, which could cost you 5 percent of your unpaid tax bill each month it remains unpaid, for up to five months.
If you file but don’t pay, you could be charged a smaller penalty of 0.5 percent on the amount you owe each month, which could add up to a maximum of 25 percent of your total debt.
If you’re still unable to gather the amount you owe before April 15 (even if you file for an extension), and if your debt is less than $100,000 (which most of us can likely relate to), you can set up a payment plan with the IRS:
Long-term payment plan (installment agreement): You owe $50,000 or less, including tax, penalties, and interest, and have filed all required returns.
Short-term payment plan: You owe less than $100,000 in tax, penalties, and interest combined.
Different payment plans come with varying fees:
The U.S. tax system operates on a pay-as-you-go basis, meaning you pay taxes as you earn income, rather than all at once at the end of the year. If you didn’t pay taxes as you earned, you’re penalized. However, the IRS is waiving most penalties this year due to tax law changes (more details here). That said, you will still owe interest if your balance isn’t paid by April 15. Interest accumulates daily, so even if you can’t pay it all off by then, it’s wise to pay as much as possible.
The simplest way to apply for a payment plan is online, though you can also apply by phone, mail, or in person at an IRS office. There’s another option, an Offer in Compromise, which may be available if paying your tax bill would cause you severe financial hardship (though this is uncommon).
Be sure to adjust your withholdings for 2019 to avoid finding yourself with another tax bill next year.
