Joe Lentini

 

If you receive an unexpected tax bill that you can’t afford to pay all at once, don’t panic. Read on to learn how to set up a payment plan with the IRS, which can help you manage your debt over time. You can establish a payment plan online, over the phone, or in person. It’s important to file your return on time, even if you can’t pay the full amount, to avoid additional late-filing fees. While interest and penalties will still apply as you make payments, they can be lower than the fees charged by high-interest credit cards. Explore your options and take advantage of the IRS payment plans or other tax debt relief options available to you.

 

What Does an IRS Payment Plan or Installment Agreement Entail?

An IRS payment plan refers to an arrangement made directly with the agency, allowing you to pay your federal tax bill over a specified period. The IRS provides both short-term and long-term payment plan options to accommodate different needs.

Short-term Payment Plan

A short-term tax payment plan allows taxpayers to settle their tax debt within either 90 or 180 days, offering a more manageable timeframe to clear their obligations.

Long-term Payment Plan

A long-term tax payment plan, also known as an installment agreement, allows taxpayers to make monthly payments over a period of time if they require more than 180 days to pay their tax bill. The specific agreement that is most suitable for you will depend on the amount you owe and the estimated duration of repayment.

By sticking to your agreed-upon plan, the IRS typically does not impose a tax levy or lien. It is important to note that participating in an IRS payment plan does not exempt you from interest and late payment penalties, which will continue to accumulate until the balance is fully paid off.

 

Who Qualifies for an IRS Payment Plan?

If you meet the following criteria, you can request a short- or long-term payment plan using the IRS’s Online Payment Agreement tool:

Short-term payment plan: You must owe less than $100,000 in combined tax, penalties, and interest; have filed all your tax returns; and be able to pay off your tax debt in either 90 or 180 days or less.

Long-term payment plan: You must owe $50,000 or less in combined tax, penalties, and interest; have filed all your tax returns; and require more than 180 days to settle your tax bill.

If the tool determines that you are ineligible, you may still qualify for a tax installment plan by submitting Form 9465 or contacting the IRS’s main hotline to apply over the phone.

 

How to Apply for a Payment Plan With the IRS

If you are eligible for a short-term or long-term payment plan, the quickest method to apply is through the IRS’s online payment plan application portal. As previously stated, you can also apply for an IRS payment plan by mail (complete IRS Form 9465) or over the phone (dial the IRS’s primary contact number: 1-800-829-1040).

 

Applying for an IRS Payment Plan Online

If you have already registered for an online IRS account to obtain a tax transcript or an identity protection PIN, you can use the same user ID and password to access the IRS’s Online Payment Agreement tool. If not, you will need to create an ID.me account to verify your identity, which requires the following information:

• A valid email address and access to your email
• Photo identification (driver’s license, state ID, passport)
• Your Social Security number or individual tax ID number
• A smartphone or webcam for identity verification
• A phone or email for multi-factor authentication

If you need help verifying your information or require accessibility assistance, visit the ID.me help page for further details.

 

Minimum Monthly Payments for IRS Installment Plans

Generally, with a long-term payment plan, you have the flexibility to select your monthly payment amount based on what you can afford. However, it’s important to choose a payment amount that ensures your debt is paid off within a 72-month period.

 

What Are the Fees for an IRS Payment Plan?

The cost of an IRS payment plan can vary depending on the specific plan you choose, how you apply, and whether you qualify for a fee reduction. If you are a low-income taxpayer, the IRS may waive the user fee if you agree to have your payments automatically withdrawn from your bank account. If you qualify as a low-income taxpayer but cannot make electronic debit payments, the IRS will refund the user fee once your balance is paid off. In order to be considered a low-income applicant, your adjusted gross income must be at or below 250% of the federal poverty level. You can determine your eligibility by completing IRS Form 13844.

A few other fee-related details to note:

When making payments using a debit or credit card, you will incur a processing fee. Debit card fees typically range from $2 to $4 per payment, while credit card fees can be up to 2% of the payment amount. If your owed balance exceeds $25,000, you must make payments through automatic withdrawals from a bank account, also known as “direct debit.”

 

How Can I Make Changes to an IRS Payment Plan?

The IRS Online Payment Agreement tool allows you to modify your monthly payment amount, alter the monthly due date, enroll in automatic withdrawals, and reinstate a payment plan if you’ve fallen behind. If your updated monthly plan doesn’t meet IRS requirements, you may need to adjust the payment amount. If you’re unable to afford the monthly payment, you may need to complete Form 9465 and Form 433-F (Collection Information Statement).

 

Is It Possible to Apply for an IRS Payment Plan Myself?

Yes, you have the option to apply for a payment plan with the IRS on your own without the need to hire a third party. However, if you choose to use a tax-relief company, you may have to grant them power of attorney to act on your behalf in applying for a payment plan. 

 

More About the IRS Payment Plan

An IRS payment plan is an arrangement made with the IRS to pay back taxes over time. If you are unable to pay your tax bill in full when filing your return, a payment plan allows you to make monthly payments until the balance is paid off. There are various payment plans available, each with its own terms and conditions. These plans provide taxpayers with a manageable way to settle their tax liabilities without facing immediate financial hardship.

The three main types of plans include:

1. Guaranteed Installment Agreement: If you owe $10,000 or less, the IRS will accept this agreement provided you haven’t filed or paid late in the past five years, commit to making on-time payments going forward, and agree to pay the outstanding amount within three years.
2. Partial Payment Installment Agreement: These agreements enable you to settle your tax debt for less than what you owe. To qualify, you must owe over $10,000, have no outstanding tax returns or bankruptcies, and demonstrate an inability to pay the full amount.
3. Individual Payment Plan (short-term and long-term): Short-term payment plans last fewer than 120 days, and have no setup fees, but incur interest. Long-term payment plans, on the other hand, extend beyond 120 days and involve setup fees.

 

What Is the Minimum Monthly Payment on an IRS Installment Agreement?

 

The amount that you must pay on your payment plan varies with your tax debt:

Tax Debt Amount	Minimum Monthly Payment
$10,000 or less	No minimum
$10,000 to $25,000	Total debt/72
$25,000 to $50,000	Total debt/72
Over $50,000	No minimum

If you owe $10,000 or less…

If your tax debt is $10,000 or less, the IRS typically grants automatic approval for your payment plan. You have considerable flexibility in establishing the terms of the plan, and as long as it takes you under three years to complete, there is usually no minimum payment requirement. Keep in mind that interest will accrue on your tax debt, so making larger monthly payments is advisable to minimize the interest you’ll need to pay.

If you owe $10,000 to $25,000…

If your tax debt ranges from $10,000 to $25,000, the IRS allows you six years to repay it. A minimum monthly payment is required, but you can choose to pay more if you wish to clear your debt earlier. To calculate the minimum payment, divide your debt by seventy-two (the number of months in six years). Keep in mind that interest will be charged, so making larger payments can help you save money in the long run.

If you owe $25,000 to $50,000…

If your tax debt is $25,000 or more, the IRS will closely monitor your payment plan. You’ll need to submit additional financial information and complete extra forms when applying for the plan. Similar to payment plans for those owing between $10,000 and $25,000, you’ll have six years to complete the plan. The minimum monthly payment is calculated by dividing your outstanding balance by seventy-two (the number of months in six years).

If you owe over $50,000…

If your tax debt exceeds $50,000, the IRS will closely collaborate with you when setting up a payment plan. This process involves scrutinizing detailed financial documents, such as bank and brokerage statements. Since every case is unique, the IRS works directly with taxpayers who owe substantial amounts to create tailored payment plans. Consequently, the repayment period and corresponding minimum payment will vary for each individual.

 

How to Establish a Payment Plan With the IRS

If you owe taxes to the IRS and cannot pay the full amount upfront, you can apply for a payment plan online. This is a convenient option for those who owe less than $50,000 and want a long-term plan, or owe $100,000 or less and want a short-term plan. The IRS is willing to work with individuals to make the payment process easier and more manageable.

 

To apply for an IRS payment plan, ensure you have the following information: 

• email address
• address from your most recent tax return
• date of birth
• filing status
• Social Security Number or Individual Tax ID Number (ITIN)
• amount of balance due (depending on the agreement type)

 

To verify your identity, you will need a financial account number, a mobile phone registered in your name, or an activation code received via postal mail (which takes 5 to 10 business days). Apply directly on the IRS website. If you owe more than the maximum amount for online applications, you must contact the IRS directly.

Varieties of Payment Plan Options

For individuals, the IRS offers two types of payment plans: long-term and short-term. Within the long-term category, there are two distinct options – one that includes automatic withdrawals and another that does not.

 

Short-Term Payment Plan: If your tax bill is under $100,000 and you can pay it off within 120 days, there will be no setup fee for your payment plan. However, interest and penalties will continue to accumulate. You have the option to make automatic payments through your checking account, or you can use a check, debit card, or credit card. Be aware that additional fees may apply when using cards.

 

Long-Term Payment Plan With Automatic Withdrawals: Long-term payment plans are designed for those owing less than $50,000 in taxes and require payment over a period exceeding 120 days. Setup fees apply to these plans but can be waived for low-income individuals. A fee of $31 is charged for this plan, with payments made via direct debit.

Long-Term Payment Plans With NO Automatic Withdrawals: This plan caters to individuals owing less than $50,000 in taxes and requiring over 120 days for repayment. If you prefer to pay via check, card, or money order instead of direct debit, opt for this plan with a $149 setup fee (rather than $31). Evaluate if the non-direct debit option justifies the additional $118. Low-income earners have a reduced setup fee of $43, which may be waived under specific conditions.

 

Fees and Interest Payments While on a Payment Plan

An installment plan indicates that you have submitted your tax return but haven’t paid the due amount. As a result, you will face a penalty for late payment, and interest will accrue on the outstanding balance.

Penalties

If you fail to pay the full amount by April 15 and enter into an installment agreement, a 0.5% penalty will be applied to the unpaid balance. For instance, if you owe $1,000, the penalty will be $5. 

 

Additionally, you will be charged 0.25% interest each month on the remaining balance. Suppose you arrange a payment plan of $100 per month on a $1,000 debt. After making the first payment, the outstanding balance is $900, and the interest incurred will be $2.25.

Interest

In addition to penalties, interest will also be charged on any unpaid taxes and penalties. The interest rate is adjusted every three months and is calculated as the federal rate plus 3%. For example, if the federal rate is 2%, the applicable interest rate would be 5%.

 

Navigating the IRS: Hire a Tax Professional

Dealing with the IRS can be a daunting and stressful experience, but fortunately, numerous tax relief companies are available to assist taxpayers. Here at J&J Tax Resolutions Group, we can help establish payment plans and negotiate tax debt settlements on your behalf. To initiate the process, simply engage the services of a tax relief company and supply the required information. They will take care of tasks such as determining the most suitable payment plan, negotiating a reduced debt settlement, and submitting the necessary paperwork to the IRS.

Navigating how to set up a payment plan with the IRS can be a tricky process, but we’re here to help! If you’re interested in partnering with a tax relief company, set up a consultation with us today.

Navigating the complexities of the tax system can be challenging, especially when it comes to understanding the potential consequences of underpaying your taxes. The IRS tax underpayment penalty is an essential fee to be aware of, as it can significantly impact your financial situation.

In this comprehensive guide, we will explore the ins and outs of the IRS tax underpayment penalty, including how it is calculated, the factors that contribute to it, and the proactive steps you can take to minimize your risk and avoid costly penalties. By gaining a thorough understanding of this crucial tax concept, you can make well-informed decisions and ensure compliance with IRS regulations.

What Should I Do If I’m Unable to Pay My Taxes?

Stay calm – you might be eligible for a self-service, online payment plan (including installment agreements) that enables you to gradually pay off your outstanding balance. Upon completing your online application, you’ll be instantly notified of your payment plan’s approval status, without needing to contact the IRS. Online payment plans are processed faster than requests submitted with electronic tax returns, even when the new tax hasn’t been assessed yet.

Online Payment Plans Include:

• Short-term payment plan – This plan has a payment period of 120 days or less and requires a total amount owed of less than $100,000, including combined tax, penalties, and interest. 
• Long-term payment plan – This plan has a payment period exceeding 120 days, involves monthly payments, and necessitates an amount owed of less than $50,000, encompassing combined tax, penalties, and interest.

If the IRS approves your long-term online payment plan (installment agreement), a setup fee may be applicable based on your income. If you already have a payment plan, you might be eligible to use the online payment plan option to modify your existing agreement. Online changes can include updating payment dates, amounts, and bank information for Direct Debit Installment Agreements.

If you’re not eligible for an online payment plan, you can also request an installment agreement (IA) by submitting Form 9465, Installment Agreement Request, to the IRS. Upon IA approval, a setup fee may be charged depending on your income. For more information, refer to Tax Topic No. 202, Tax Payment Options.

When requesting an IA, the pending period extends or suspends the initial ten-year collection period. An IA request typically remains pending until it is reviewed, the IA is established, or the request is withdrawn or denied. If the requested IA is rejected, the collection period’s progression is suspended for 30 days. Similarly, if you default on your IA payments and the IRS intends to terminate the agreement, the collection period is suspended for 30 days. 

If you choose to appeal either an IA rejection or termination, the collection period’s progression is suspended during the appeal process until the appealed decision becomes final. For more information, refer to Tax Topic No. 160, Statute Expiration Dates.

What Are the Consequences of Not Filing or Paying Taxes Owed to the IRS?

You might question the need to submit your tax return if you are unable to pay your tax bill. However, it is crucial to do so. If you have unpaid back taxes or current taxes, you could face substantial penalties and interest accumulation over time for non-payment. The Failure to Pay Penalty begins at 0.5% of your outstanding balance per month (limited to 25% of the back taxes you owe). The interest rate for underpayment of taxes is 6% as of May 2019, but it may vary quarterly.

Actions to Take When You Owe Money to the IRS

Being aware of your choices can help you decide what steps to take if you owe money to the IRS, allowing you to develop a strategy. Here are some prevalent options for individuals who owe taxes but are unable to pay them:

1. Establish a Payment Plan With the IRS

Taxpayers have the option of establishing payment plans with the IRS, known as installment agreements. Depending on your individual circumstances — such as the amount owed and how long you can take to pay it off — there are different types of agreements available. For instance, if you are able to pay your balance in full within 120 days, it may be more beneficial to make a lump-sum payment rather than setting up an installment agreement. If your financial situation does not allow you to pay the full balance within 120 days, however, an installment agreement can help spread out the payments over a longer period of time.

Fees and Costs

If you are looking for a way to manage your tax debt more effectively, one of your options is to apply for an online payment agreement. The application fee for an online payment agreement is $149, or you can opt for an electronic payment of $31. Those who qualify as low-income taxpayers can receive a reduced fee of $43, by submitting Form 13844. 

To initiate an online payment agreement, you will need to complete Form 9465. For installment agreements of $50,000 or less, you do not need to submit a financial statement. However, it is important to consider what is best for your individual circumstances, so it is recommended to consult with an expert in tax debt to assess your situation and identify the best solution.

Advantages and Disadvantages

By setting up an installment agreement, the penalty on your unpaid balance decreases to 0.25% per month until the full balance is paid on schedule. Interest is charged at the short-term federal rate plus 3% (interest rates may vary each quarter). The IRS can generally void agreements if payments are not made on schedule.

Forms

If the balance is more than $50,000, Form 433-A or Form 433-F is required. You can also make payments through payroll deductions using Form 2159, Payroll Deduction Agreement.

2. Ask for a Brief Extension to Settle the Entire Amount

The IRS offers taxpayers up to 120 days to pay their entire tax balance.

Fees and Costs

There is no fee for requesting the extension. However, a penalty of 0.5% per month applies to the unpaid balance.

Required Action

Complete an online payment agreement, call the IRS at (800) 829-1040, or seek assistance from us. 

Advantages and Disadvantages

This option is suitable for taxpayers who require a brief period to pay their full tax bill. The IRS charges interest at the short-term federal rate plus 3% (interest rates may vary each quarter). With short-term extensions, you avoid the installment payment application fee (see #1), but not late-payment penalties and interest.

3. Request a Financial Hardship Extension for Tax Payment

The IRS provides options for individuals facing financial hardship, including currently not collectible status and the Offer in Compromise. To qualify for a hardship-based extension, you must demonstrate that paying the taxes owed would result in financial hardship, as per the IRS financial standards.

Fees and Costs

There is no cost to apply for a hardship extension. While no penalties apply, interest is calculated at the short-term federal rate plus 3% (interest rates may vary each quarter).

Required Action

Submit IRS Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship. Include a statement detailing your assets and liabilities.

4. Get a Personal Loan

You may consider requesting a loan from a personal contact, such as a friend or family member, to help cover your tax debt. Fees and costs can vary significantly depending on the lender. This option might be cost-effective, but it’s essential to use your best judgment when making such a decision.

5. Borrow From Your 401(k)

If your 401(k) plan permits this type of loan, you are generally limited to 50% of your account balance, with a maximum of $50,000, and must repay the funds within five years.

Fees and Costs

There may be a minimal fee, and the plan is required to charge interest.

Required Action

Consult your plan administrator for details.

Advantages and Disadvantages

If allowed, a loan from your 401(k) plan can serve as a convenient and affordable source of cash to pay current or back taxes owed. However, the loan may negatively affect your future retirement savings if not repaid. Failure to make timely payments, leaving your company without repaying the loan, or plan termination will result in the loan being treated as a taxable distribution. Additionally, if you are below the age of 59½, a taxable distribution is subject to a 10% early distribution penalty.

6. Use a Debit/Credit Card

Various service providers offer payment options for tax balances.

Fees and Costs

These vary, typically around $2.49 to $3.95 for debit card payments or 1.87% to 2.35% of the tax balance due for credit card payments.

Required Action

Consult the IRS for a list of approved service providers.

Advantages and Disadvantages

This payment method offers the convenience of making payments anytime, anywhere with greater control and flexibility. You may also enjoy other benefits such as the ability to earn points, miles, or other credit card rewards. However, always keep in mind that having high credit card balances may hurt your credit score and can make it difficult to handle unmanageable debt. Be sure to use your credit card responsibly and understand the risks before you choose this payment method.

Uncertain About How to Handle Your IRS Debt? Let Us Help!

Our tax specialists can assist you in determining the appropriate course of action if you owe taxes but are unable to pay. Seek guidance from our reliable IRS experts.

If you’re unable to pay your taxes, the initial step is to recognize that there’s an issue at hand. To put it plainly: You have a tax obligation, but you lack the funds to fulfill it. Instead of focusing on fear or uncertainties, tackle the situation one step at a time.

Step 1: Submit Your Tax Return by the Regular Deadline 

Submit your return even if you’re unable to pay the taxes on time. Contact a professional as soon as possible to assist you in filing your taxes. We might be able to identify credits and deductions that can reduce your tax obligation. Remember, every dollar counts when you owe the IRS!

You may assume it’s better to delay filing your taxes if you owe the IRS money. However, the penalty for not submitting a return or submitting it late can be ten times higher than the penalty for not paying on time.

Keep in mind that even if you complete your tax return in February or March, the tax payment isn’t due until Tax Day. Therefore, waiting until the deadline to pay may provide you with a few months to save or earn extra money.

You might wonder if a tax extension would grant you additional time to pay. Unfortunately, it does not. An extension only gives you more time to file, but your taxes are still due on Tax Day – meaning if you pay late, you’ll face interest and penalties on any outstanding taxes for the year. So, ensure that you file your tax return on time!

Step 2: Pay as Much as Possible by the Tax Deadline

If you find yourself unemployed, don’t panic. Temporarily set aside the tax bill and prioritize the essentials for survival. Focus on the “Four Walls” — food, utilities, shelter, and transportation — before anything else. Once you’ve provided for your basic needs, pay the IRS what you can.

Here are some other tips to reduce the amount you owe at tax time:

• Reduce Your Taxable Income: Look for ways to reduce your taxable income by making contributions to retirement accounts and taking all the available deductions and credits you qualify for.

• Prepay for Expenses: Consider prepaying your estimated taxes and any other expenses you can legally pay now to reduce your taxable income.

• Make Charitable Donations: Consider making charitable donations if you are able to. Donations to qualified charities are typically deductible so you will reduce your taxable income by the amount of the donation.

• Delay Income: Delay income where possible, including delaying any required bonus payments or other income that you know will come.

• Utilize Tax-Deferred Accounts: Take full advantage of tax-deferred accounts like Individual Retirement Accounts (IRAs), 401(k)s, and other types of retirement savings accounts. The taxes you’ll pay in future years will generally be lower than if you paid them today.

• Increase Your Withholdings: As long as you are the recipient of a refund, consider increasing your withholdings if you know you will end up with a large tax bill. This way you can spread out your payments.

Step 3: Continue Paying the Taxes You Owe Even After Filing, and Discuss a Payment Plan With the IRS

After Tax Day, you’ll have a month or two before the IRS contacts you regarding your outstanding taxes. During this period, aim to allocate every available dollar toward the balance with the goal of paying it off before they reach out to you. 

If you can’t pay your tax bill by the deadline, consider applying for a payment plan on the IRS website. You can bypass lengthy phone wait times and establish the plan online. The IRS provides short-term payment plans (120 days or fewer) for bills under $100,000 and long-term monthly plans for balances below $50,000. A fee between $31 and $130 may be required, but this could be waived if you have a low income. Focusing on your tax debt within a debt snowball strategy can help you pay off your balance in under a year.

Step 4: Resolve the Issue: Avoid Unmanageable Tax Bills in the Future

Partner with us to avoid encountering unmanageable taxes in the future. This could include setting aside earnings from a side business, making quarterly tax payments, or modifying your paycheck withholding. Regardless of the issue, a tax expert can pinpoint it and help you address it proactively.

What Occurs if You Fail to File Your Taxes?

Neglecting to file a tax return when you have outstanding taxes is not just inadvisable but also unlawful, and the IRS will impose penalties. The Failure to Pay Penalty equates to 5% of your unpaid taxes for each month they are overdue, capping at 25% of your tax bill after five months. The IRS applies interest on top of these penalties. Failing to file a return could lead to imprisonment for up to a year for each year you omit filing. Nevertheless, the IRS generally pursues alternative solutions to address issues with taxpayers before considering imprisonment.

Hence, regarding tax submission, the saying “better late than never” truly holds true! You will be in a more favorable situation with the IRS if you file your tax return, even if you cannot pay your bill right away. Avoid delaying until the IRS takes action against you. By filing, you will also gain the advantage of decreased penalties and interest.

What Happens If You Submitted Your Taxes But Can’t Pay Right Now?

If you have submitted your tax return but are unable to pay your bill, there are options for arranging a payment plan. The Failure to Pay Penalty amounts to 0.5% per month, reaching a maximum of 25% of your unpaid taxes. This penalty is considerably lower than the Failure to File Penalty, highlighting the significance of consistently filing your taxes in a timely manner. By actively setting up a monthly payment plan, the IRS will decrease your Failure to Pay Penalty to 0.25% per month until your bill is completely settled.

What If I Pay My Taxes Late?

If you are experiencing financial difficulties, such as the death of a partner or unemployment, you can request the IRS categorize your bill as “currently not collectible.” This provides you more time to pay off your debt while halting collection efforts for a certain period of time. Keep in mind, though, interest and penalties will continue to add up until your bill is settled. Another solution is to apply for an Offer in Compromise (OIC). 

This enables you to consult with the IRS for a smaller payment than the amount you owe. While filling out an OIC, you present a payment calculation to the IRS, asking them to consent to your lower rate. The IRS evaluates your offer based on your income, expenses, ability to pay, and the value of your assets. It’s important to note that it is tricky to be eligible for an OIC, as approvals are generally rare. Typically, those in extreme financial distress are given this type of tax assistance.

Can You Go to Jail if You Don’t Pay Taxes?

Although the era of Charles Dickens and debtors’ prisons has long passed, with their abolishment in the United States in 1833, failing to pay your taxes can still lead to significant repercussions. If you have an unpaid tax bill and show no intention of settling it, the IRS may implement enforcement measures against you. These measures can involve wage garnishment, levying your bank account, putting a lien on your property, or even seizing your assets.

In case you deliberately hide significant income sources, submit fraudulent tax returns, or neglect to file a return to avoid taxes, you may be accused of tax fraud or tax evasion. The severity of your actions may determine whether you face imprisonment for these offenses. For example, the notorious mobster Al Capone was sentenced to 11 years in prison for tax evasion, as it was the only offense the FBI could successfully prosecute him for.

What Is the Duration to Settle Your Tax Debt With the IRS if You Owe Them?

The IRS offers taxpayers up to 120 days to settle their total tax balance, free of charge. However, the amount unpaid will incur a monthly penalty of 0.5%. To obtain an extension, an online payment agreement can be filled out, or the IRS can be reached at (800) 829-1040 for assistance. Alternatively, you can have one of our professionals take care of the process for you.

What Occurs if You Have an Outstanding Debt With the IRS and Fail to Make a Payment?

If you fail to pay your taxes, you will be charged a penalty of 0.5% for each month (or portion thereof) up to a maximum of 25% of the total balance due. If you establish a payment plan, the penalty rate is decreased to 0.25% each month. Both interest and penalties increase the amount that you owe.

What If You Owe the IRS Over $100,000?

For individuals owing a tax debt in excess of $100,000, the IRS may take various courses of action, such as issuing a Notice of Federal Tax Lien to make known the debt, garnishing wages, confiscating funds from bank accounts, and invalidating or rejecting passport applications.

How Do I Ask the IRS for Tax Forgiveness?

Use Form 843 to request a refund or apply for an abatement of specific taxes, interest, penalties, fees, and additional tax charges. If you owe the IRS and cannot pay, it is essential to take immediate action to address the situation. Do not wait until you have incurred an IRS tax underpayment penalty. 

The IRS provides various options, such as payment plans and extensions, to assist taxpayers in managing their tax debt. Ignoring the issue will only lead to increased penalties, interest, and potential legal action. By being proactive, seeking professional advice, and exploring available solutions, you can minimize the financial impact and work towards resolving your tax obligations. 

Keep in mind that the IRS is more likely to cooperate with those who show a genuine effort to fulfill their tax responsibilities.

If you are unable to pay your taxes on time, don’t worry — you are not alone. Over five million Americans require some type of alternative payment option each year. The IRS offers four alternatives in these cases: an extension to pay over a period of up to 120 days; payment plans allowing you to pay your taxes over time; Currently Not Collectible status for those who demonstrate financial hardship; and an Offer in Compromise, wherein the IRS can settle for an amount less than what is owed.

Fortunately, a payment alternative is available to those who qualify and contact the IRS to request it. Moreover, the current interest rate on these plans is a low 3%. Ignoring the taxes you owe is not advised, as the IRS may take more severe measures such as garnishing wages or levying one’s bank account. A federal tax lien could additionally be issued, negatively impacting credit and making it hard to sell a property or get a loan.

Is it Necessary to Pay My Taxes in a Single Payment?

No. If you are unable to pay your taxes on time or in full, you can still work out a solution with the IRS. To begin with, file your return and pay as much as you can. The IRS will then send you an invoice for the remaining amount, charging you with interest and a late payment penalty. If your bill is under $50,000, you can request an installment agreement by filling out the payment agreement form online. You can also file Form 9465 or charge the total to your credit card.

What Occurs When You’re Unable to Pay Your Taxes?

After you’re done with your taxes, you may not be feeling too great if you owe the IRS a considerable amount. You may feel disbelief that such a thing even happened, then frustration as you realize the taxes you have to pay. Questions may arise like, how much time do I have to pay? Or is there a chance I could go to jail? Take a moment to relax and know that you’re fine and jail time isn’t an option here.

Failing to file taxes or attempting to evade the Internal Revenue Service is not the answer; it will only add to fines and penalties. With our help, even the most serious of tax debt can be managed, and we can help you ensure it never happens again.

Steps to Take When Unable to Pay Your Taxes

When you realize you can’t pay your taxes, the first step is to take action. Acknowledge that you owe taxes but don’t have the money to pay them back. Don’t let fear take over or jump to conclusions. Follow these simple steps to address the issue.  

Step 1: Submit your tax return by the regular deadline, even if you’re unable to pay the taxes owed promptly.

It’s essential to enlist the aid of a seasoned tax professional as soon as possible in order to file your taxes. Not only can they identify potential credits and deductions to reduce what you owe the IRS, but every dollar matters when you owe the government.

You may delay filing your taxes, assuming you’ll save money, but the penalties for not filing or filing late could be a lot higher than the penalty for not paying on time. Understand that even if you file your tax return in February or March, the due date doesn’t come until before Tax Day. This gives you two months to gather the funds needed to make your payment.

When considering an extension, bear in mind that it doesn’t provide an extension of the amount due. An extension only affords you more time to submit your tax return. However, if you wait too long to settle the amount due, you’ll be subjected to interest and penalties on unpaid taxes. Don’t forget to make sure you file on time!

Step 2: Settle as much of your tax debt as possible by the due date.

When owing a large amount on taxes, like $15,000 or more, it can be difficult to come up with the necessary funds before the due date. To avoid penalties and interest, consider selling items around your home to come up with the extra money. If you find yourself unemployed, prioritize essential needs such as food, utilities, shelter, and transportation before all else. After you have provided those basic necessities, pay whatever you can afford towards the tax bill.

Step 3: Continue making payments on your tax debt even after filing, and discuss a payment plan with the IRS.

After Tax Day, you’ll have a month or two before the IRS contacts you about the remaining taxes owed. During this period, prioritize paying off the tax debt with every dollar available. If you’re unable to clear the bill by the time the IRS contacts you, apply for a payment plan via the IRS website. 

The IRS offers short-term plans of 120 days or less if the bill is under $100,000, and long-term plans under $50,000 with an associated setup fee. This fee may be waived for those classified as low-income earners. With the right plan and motivation, you can pay off your tax debt in a timely manner.

Step 4: Address the issue to prevent future unmanageable tax bills.

After making a mistake with a miscalculation of income, resulting in owing a few thousand dollars at the end of the year, one should collaborate with a trustworthy tax expert to ensure an unaffordable tax burden is not faced in the future. This could involve setting aside profits from a side business, making quarterly tax payments, or adjusting paycheck withholding. 

The right tax professional will be able to identify the issues and assist with resolving them moving forward. To make this easier and avoid complications in the future, it is beneficial to collect the necessary paperwork from the start. 

Consequences of Not Filing Your Taxes

Failing to file a tax return when you owe taxes is an illegal action with significant consequences. The IRS imposes a Failure to File Penalty amounting to 5% of unpaid taxes for each month the taxes remain overdue, with the penalty maxing out at 25% of the total tax bill after five months of not filing. 

On top of this, the IRS will add interest to the penalty. In extreme cases where a taxpayer continues to neglect to file a return, imprisonment could be enforced; however, the IRS usually seeks alternative solutions to resolve any issues with a taxpayer before bringing on jail time. Thus, it is essential to file your tax return on time to avoid any of these penalties.

Paying Your Taxes Late

When it comes to submitting your taxes, the adage “better late than never” certainly applies. Filing your tax return, even if you cannot afford to pay the full amount, will put you in a more favorable position with the IRS. It’s best not to wait for the IRS to discover your oversight. By filing, you’ll also benefit from reduced penalties and interest charges.

If your finances are in difficulty due to the loss of a loved one or job, you may ask the IRS to classify your due balance as Currently Not Collectible. This delays payment and halts collection efforts, though interest and penalties will still add to the amount owed until it is paid. Additionally, an Offer In Compromise (OIC) may be proposed — this proposes a realistic payment rate to the IRS, ultimately reducing what is owed and allowing debt resolution. The IRS calculates income, expenses, assets, and other considerations to decide if the offer is acceptable.

It’s important to note that the chances of qualifying for an Offer In Compromise are relatively low. OIC approvals are uncommon, and typically, only those in dire financial situations are granted this form of tax relief.

Is it Possible to Face Jail Time for Failing to Pay Taxes?

Though it’s unlikely you would be sent to jail for not paying your taxes, there can be some serious consequences. The IRS can take several enforcement actions against you, including garnishing your wages, levying your bank account, placing a lien on your property, or seizing your assets.

However, if you intentionally concealed significant income sources, lied on your tax returns, or failed to file a return to avoid taxes, you could be charged with tax fraud or tax evasion. You may face three to five years in jail for these offenses, depending on the severity of your actions. Don’t be like infamous gangster Al Capone who served eleven years in prison for tax evasion (the only crime the FBI could successfully charge him with).

5 Alternatives for Individuals Unable to Pay Their Tax Debts

The anticipation of receiving a tax refund can make the process of filing taxes enjoyable. However, if you believe you might owe the IRS money that you cannot afford, initiating the process can be daunting. If you’re delaying filing due to concerns about tax liabilities, it’s essential to know the available tax relief options. Here are five methods to seek assistance with your tax debt:

1. Contribute as much as possible.

Regardless of the amount you owe, it’s essential to either file your taxes on time or request an extension if you cannot meet the deadline. While an extension grants you additional time to file your taxes, it does not extend the deadline for payment; however, neglecting to file an extension can result in severe penalties. 

If you fail to pay your taxes, the IRS will charge interest on the outstanding amount. Although you may not be able to cover the entire tax bill, paying a portion of it will reduce the interest accrued on the remaining balance.

2. Explore the option of an IRS payment plan.

An IRS payment plan, also known as an installment agreement, enables you to settle your tax debt over an extended period. You can apply for a short-term or long-term payment plan based on the amount you owe and your estimated repayment timeframe. 

Be aware that a payment plan will involve interest and penalty charges. Additionally, there may be processing fees for using a debit or credit card and a setup fee. However, the IRS may waive application fees for low-income applicants who meet the eligibility criteria.

3. Submit a request for an Offer In Compromise.

An Offer In Compromise allows you to settle your tax debt for less than the full amount owed. The primary advantage of an OIC is paying less than the actual debt. Additionally, it helps avoid collection calls and letters from the IRS.

Applying for an Offer In Compromise is a lengthy process that requires extensive documentation to demonstrate your inability to pay the tax bill, a $205 application fee, and an initial payment toward your debt. While your application is under review, your payments and fees will be applied to your outstanding balance, which must be paid eventually, even if the IRS agrees to reduce it.

It’s important to note that the IRS rejects most of these applications. If this happens, your initial payment will likely be applied to your balance, and your application fee may be refundable under certain circumstances.

For those who meet the low-income certification requirements, the application fee and initial payment might not be necessary. Additionally, you won’t need to make monthly payments while your offer is being evaluated.

4. Request a Currently Not Collectible status.

For individuals unable to pay their tax bill, requesting a Currently Not Collectible status from the IRS is a potential option. This status temporarily postpones collection efforts until your financial situation improves. However, it is crucial to remember that this designation is temporary, and you will ultimately need to settle your tax debt. Additionally, the IRS can still file a lien against you while you maintain this status.

To secure a Currently Not Collectible status, you must complete a form and provide details about your assets, monthly income, and expenses.

5. Seek advice from a specialist.

In case you are uncertain about your available options, consult a tax professional before engaging with the IRS. Sometimes how to get tax debt relief is best determined by a tax professional after looking over your current circumstances. Request a consultation today. 

Let JJ Tax Group help you figure out how to get tax debt relief. What exactly do we mean by tax debt relief? IRS tax debt relief or forgiveness enables taxpayers with outstanding tax liabilities to decrease a portion of their debt based on their specific situation. Although tax debt relief is comparatively uncommon, it is not unattainable, and a professional must evaluate each case to ascertain the individual’s eligibility. 

The government has established an IRS debt forgiveness program that provides various alternatives for alleviating tax debt. This program assists taxpayers in navigating the intricate tax forgiveness process and establishing a suitable debt repayment plan. Read on for a brief synopsis of the IRS debt forgiveness program.

What is the Debt Forgiveness Program?

The IRS debt forgiveness program is a strategy established by the Internal Revenue Service to streamline repayments and provide resources and support to taxpayers who owe money to the IRS. Only specific individuals qualify for tax debt forgiveness, and each person’s financial aid requirements must be evaluated to determine eligibility. 

IRS debt forgiveness is applicable if the taxpayer can demonstrate severe financial hardship and has completed all prior tax returns. The IRS debt relief program helps avoid hefty penalties for late taxes. Tax debt forgiveness is also more advantageous for your credit score over time. As IRS debt forgiveness serves as an official method to arrange a debt consolidation plan, it will reflect more positively on your permanent record.

Who Is Eligible for the Program?

IRS debt relief is designed for individuals with a debt of $50,000 or less. For married couples, tax debt forgiveness is accessible if their individual income is under $100,000 or $200,000 combined. Self-employed individuals who have experienced a minimum of 25% income loss can also apply for the IRS debt forgiveness program. 

Regardless of your circumstances, your case must be assessed to determine your eligibility for the program. Tax debt forgiveness will be computed based on your specific situation, accompanied by a payment plan. There are various options available to decrease debts owed to the IRS.

How Does the Forgiveness Plan Work?

To obtain tax debt relief, you must apply and be accepted into an IRS debt forgiveness program. Once accepted, you need to agree to the terms of your specific IRS debt forgiveness program. The IRS will consistently evaluate your financial circumstances to oversee your tax debt forgiveness progress. You will be provided with an IRS debt forgiveness payment plan, which allows you to pay off the entire or adjusted amount in a lump sum or through installments.

What Is a Tax Shield?

A tax shield refers to a decrease in income tax resulting from claiming a permissible deduction from taxable income. For instance, since interest on debt is considered a tax-deductible expense, acquiring debt generates a tax shield.

Expert Facts About Debt Relief for Taxes

• Tax relief can aid in reducing the taxes owed to the IRS. 
• It might be possible to arrange a more budget-friendly payment plan with the IRS. 
• You could be eligible for an Offer in Compromise, allowing you to settle your tax debt for a lesser amount than owed. 
• Acquiring relief can take several months or even years, depending on your situation and the amount owed. 
• Collaborating with a qualified professional knowledgeable in tax law and experienced in dealing with the IRS is crucial. JJ Tax Group can help you get tax relief. 
• Numerous tax relief programs are accessible, so it’s vital to thoroughly research each option before determining the most suitable one for you. 
• If you don’t qualify for any tax relief program, alternative solutions include filing for bankruptcy or negotiating directly with creditors.

Is IRS Tax Debt Forgiveness Really Possible?

Although total tax debt forgiveness may seem like a myth, there are relief options available to reduce or eliminate your liability on an unpaid tax debt. While some misconceptions can be harmless distractions, relying on tax forgiveness fantasies can potentially disrupt your life. This may seem exaggerated, but if you’ve ever faced the IRS, you know the intensity is justified. 

Tax forgiveness, though appealing in theory, is not a tangible solution for your liability. However, there are several beneficial programs you might be eligible for that can forgive all or part of your liability. In your quest for a suitable solution, it’s easy to be misled by unscrupulous organizations promising everything — ultimately costing you valuable time and money. Focus on these basic, pragmatic resolution options to steer clear of going down the wrong path.

Tax Relief Solutions You May Qualify For

The Innocent Spouse Program

Based on your marital situation, the Innocent Spouse Program could be an ideal option. This program allows you to avoid responsibility for your spouse’s tax mishaps. In simple terms, if your partner incurred a liability due to errors in their tax return that you were not involved in and had no reason to be aware of, you can be exempted from sharing the tax bill. The IRS approves cases for eligible applicants who can provide legitimate documentation supporting their claims. Although this is not a forgiveness program, it ensures that the liability is placed on the responsible party.

Offer in Compromise

The closest option to tax debt forgiveness is the Offer in Compromise (OIC), which serves as a settlement agreement between you and the IRS. An OIC allows you to pay significantly less than what you owe to resolve your tax debt, which is a positive aspect. However, the downside is that very few individuals qualify for an Offer in Compromise, with typically less than 25% of applicants being approved for OICs each year. 

Moreover, there are drawbacks to requesting an OIC if you’re not approved. The statute of limitations on your debt (ten years from the date of assessment) gets suspended while you wait. In other words, if the IRS takes a year to review your request and denies it, that year is added to the life of your debt.

Additionally, you must disclose detailed financial information during your request, which could potentially backfire if the IRS determines that you have the capability to pay your debt through means such as liquidating assets or borrowing against a retirement account.

Currently Not Collectible

There is a possibility that you may not have to pay the IRS anything at all. If you genuinely cannot afford to repay your tax debt, you can request to be deemed Currently Not Collectible (CNC). To qualify, your financial circumstances must be such that making any payment towards your liability would cause you financial hardship. Keep in mind that CNC status is temporary, and the IRS will periodically review your case to re-evaluate your ability to pay. However, in theory, if your situation remains unchanged for an extended period, it is possible to outlast your tax debt without paying a single cent.

Cautious Optimism

Having a tax debt is not the end of the world, as the IRS offers several useful programs that you might be eligible for. However, it’s essential to approach the situation carefully. Initially, it’s advisable to consult with a tax resolution company before taking any action. This consultation usually comes at no cost to you and can provide valuable insights into the most suitable resolution strategy. After all, seeking a legal solution to your tax problem is perfectly acceptable, as long as it’s based on reality.

Garnishment/Levy Release

Many individuals are familiar with the concept of wage garnishment, but the term levy may not be as well-known. Essentially, both result in the government seizing money or assets to repay a debt you owe. This can involve the IRS draining your bank account, withholding future tax refunds, and even confiscating and selling your property, such as vehicles, to settle the outstanding balance. So, what can be done in such situations? If a levy or garnishment significantly reduces your ability to cover basic and reasonable living expenses, you have the option to seek a modification or release due to the financial hardship it creates.

Bankruptcy 

While some may view it as a potential solution, filing Chapter 7 or Chapter 13 bankruptcy and completing the bankruptcy plan may not guarantee a discharge (relief from personal liability) of tax debt. Bankruptcy can negatively impact your credit score, hinder your ability to borrow, and result in serious financial repercussions. If you have already filed for bankruptcy, or are considering doing so, it is crucial to consult your attorney about the tax implications involved.

When to Consider the IRS Debt Forgiveness Program

Consider the debt forgiveness program when you have exhausted all other methods to settle your taxes without success. This program might be a viable option if a taxpayer cannot afford their tax bill. However, it should not be the primary choice. The ideal scenario involves repaying the tax liability in a single lump sum. If that is not possible and all other alternatives have been explored, the IRS debt forgiveness program could be a potential solution.

Failure to pay taxes on time results in a late filing penalty, which amounts to five percent of the tax owed per month of delay, up to a maximum penalty of 25 percent of the total balance. Additionally, underpaying taxes may incur a penalty ranging from 0.5 to one percent per month on the outstanding balance.

Failing to fulfill your tax obligations can lead to a rapidly escalating tax liability. In such cases, the IRS debt forgiveness program might be a suitable financial solution. However, it is essential to understand that not all taxpayers are eligible for this program. The IRS evaluates various factors to determine eligibility, and only those meeting specific criteria will qualify.

The IRS conducts a thorough examination of your financial situation to decide whether they believe you can settle your tax bill. If they determine you cannot, they will offer you tailored relief options. It is rare for the IRS to forgive tax debts completely. Arrangements like Offer in Compromise are only granted to individuals experiencing genuine financial hardship, such as a severe healthcare emergency or job loss combined with limited employment prospects. This option will never be available to those with substantial income or significant assets.

Another aspect to consider is the possibility of managing your tax debt independently through the IRS’s installment agreement using their payment plan option. This alternative is accessible to anyone who applies with Form 9465 and has an outstanding balance of less than $10,000. If your tax debt falls within this range, opt for this solution instead of seeking another debt forgiveness program.

Is it a Good Idea to Utilize the Debt Forgiveness Program?

The IRS debt forgiveness program can be a beneficial option for those unable to pay their taxes in full. However, it comes with certain consequences. Forgiven debt through these programs may be taxable in the future, potentially leading to additional financial obligations down the line. This option might be suitable if you are aware of this possibility and are comfortable with the prospect of paying more later while resolving your current tax issue.

It is important to note that participating in the forgiveness program may impact your credit score, as the IRS might report the forgiven debt as a negative mark. Additionally, delaying tax payments could result in penalties and increased interest rates, making repayment more challenging.

How Does IRS Tax Debt Forgiveness Work?

The IRS debt forgiveness program operates by enabling taxpayers to have a portion or all of their tax debt forgiven. Depending on the amount owed, taxpayers may be eligible for complete or partial forgiveness. If granted full forgiveness, the IRS will eliminate all outstanding tax liabilities and not require further payments.

Taxpayers can also request a settlement offer from the IRS, leading to reduced payments over a specified period. This option is well-suited for those who cannot pay their entire tax liability but can commit to ongoing payments at a lower amount.

To begin exploring IRS tax debt forgiveness, consult with a tax professional or tax attorney who can negotiate with the IRS on your behalf. These experts have more experience in such matters and can help you secure better terms for a payment plan or improve your chances of being granted a debt forgiveness plan.

Am I Eligible for the IRS Tax Debt Forgiveness?

To qualify for the forgiveness program, taxpayers must show that they are unable to fully repay their taxes due to financial hardship. This hardship may result from job loss, illness, or disability. In addition to proving financial hardship, the IRS must also ascertain that there has been no intentional negligence on the part of the taxpayer.

The IRS will carefully examine all requests before deciding whether to grant forgiveness or not. Applicants should be prepared to provide comprehensive documentation and evidence of their financial circumstances.

The IRS typically considers several factors when determining eligibility for debt forgiveness for taxpayers. These include:

• Tax balance below $50,000
• Income below $100,000 for individuals or $200,000 for married couples
• A recent income decrease of over 25% for self-employed individuals

Will You Be Penalized for Using the Debt Forgiveness Program?

In most instances, taxpayers using the IRS debt forgiveness program will not face penalties if they fulfill all necessary criteria. However, there might be some tax implications associated with having your tax debt forgiven.

Potential adverse consequences may include reduced credit scores, which could affect your ability to obtain loans for items like cars or homes in the future. In some cases, the forgiven tax liability amount may be considered taxable income in a subsequent year. This means you could owe taxes on the forgiven amount during the next tax season. It is crucial to consult with your accountant or tax attorney to comprehend how this operates and plan accordingly to prevent unexpected taxes in the future.

How to Apply for Tax Debt Relief or Forgiveness from the IRS

There is good news: tax debt relief is possible. The not-so-good news? Not everyone qualifies for a settlement, but there are several options to explore and consider. The IRS offers a variety of tax debt relief programs and many online tools and forms to make it easier to apply for them. If you are overwhelmed by the complexity of your situation, consult a professional — we are just a phone call away. Either way, it’s best to deal with tax debt as soon as possible.

What to Know Before You Ask for IRS Tax Debt Forgiveness

First, comprehend the reason the IRS claims you owe taxes and determine if you agree with their assessment. If you believe the IRS has made an error or miscalculated something, consider enlisting the help of a JJ Tax Group Tax Resolution Specialist to clarify the issue prior to taking action to resolve it.

Requirements for Tax Debt Forgiveness or Settlement

• You must ensure that all tax returns are filed.
• Your state income taxes should be paid.
• You cannot be involved in an ongoing bankruptcy proceeding.

For installment payment agreements, there are some other requirements:

• Your tax debt cannot exceed $100,000 (further details below).
• You must be able to make monthly payments to the IRS.
• It is expected that you will make timely payments for the agreed-upon term.

The amount of your debt can also affect your available options:

• If you owe $50,000 or less in combined tax, penalties, and interest, you might be eligible to apply for a long-term payment plan (more than 120 days, up to 72 months).
• If you owe less than $100,000 in combined tax, penalties, and interest, you might be able to apply for a short-term payment plan (up to 120 days).

Is a Tax Debt Relief Program Right For You?

It is highly likely that one of the aforementioned options can assist you in resolving your IRS tax debt. To determine the most suitable solution for your specific situation, seeking advice from a tax professional is recommended. Feel free to reach out to us for a complimentary consultation. 

What About Taxes During Debt Forgiveness?

Debt forgiveness generally results in a revenue loss for the creditor, or in some instances, a capital loss. In the absence of specific debt forgiveness regulations, the debtor might not be taxed on any gains and could continue to claim deductions for both revenue and capital losses, as well as other eligible expenses.

Can Tax Be a Debt?

Tax liability refers to the total amount of tax debt an individual, corporation, or other entity owes to a government. Various types of taxes, such as income taxes, sales tax, and capital gains tax, contribute to this tax liability.

What Is Form 982 for Cancellation of Debt?

Form 982 is utilized to ascertain, in specific situations outlined in Section 108, the amount of forgiven debt that can be excluded from an individual’s gross income.

Can Debt Be Cancelled?

Debt cancellation may transpire when the creditor is unable to collect or decides to abandon the pursuit of the amount you are required to pay.

Obtaining tax debt forgiveness is a viable option for those struggling to repay their outstanding tax liabilities. By exploring various avenues such as offers in compromise, installment agreements, innocent spouse relief, or seeking professional advice, individuals can find suitable solutions to alleviate their tax burdens. It is essential to understand the eligibility criteria and requirements for each option and consult with one of our tax professionals if needed. 

Now that you know how to get tax debt relief, you can start taking proactive steps toward resolving tax debt, which will lead to financial stability and peace of mind, ultimately benefiting both the taxpayer and the government.