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Owe Taxes? Payment Options You Need to Know

Posted on June 19, 2013 by

taxesLooking to pay off your taxes or get rid of your tax debt? Today there are more options than ever depending on your situation that you can take advantage of. Some of the options do not require you deal directly with the IRS. Your tax debt options will depend whether you can pay in full, partially, or not at all. Let’s take a look at the different options and tax help available to you depending on your situation.

Pay in Full

If you agree with the tax bill, it is highly recommended to pay the full amount or as much as you can. By paying your taxes as soon as possible, you can avoid additional penalties and interest that can add up. Keep in mind that bankruptcy may not eliminate your tax debt. If you can afford to pay off your taxes now, the following are your options on how:

  1. Pay using the Electronic Federal Tax Payment System (EFTPS) at www.eftps.com or by calling their voice response system at 1-800-555-3453. This service is provided free by the US Department of the Treasury to pay your federal taxes to the IRS. You can only pay using your bank account information. Credit and Debit cards are not accepted.
  2. Pay by debit or credit card using an IRS approved payment processor, such as Pay1040.com (tel: 888-729-1040). The payment processor will charge a processing fee, which may be tax deductible. The fees vary by service provider. Pay1040.com will charge $2.99 flat fee for debit card transactions and 2.35% for credit card transactions.
  3. Pay in person or by mail. You can always bring your payment to the nearest IRS office (visit www.irs.gov/localcontacts/index.html), or mail your payment the old fashion way by check to the IRS center which prints with your tax return.
  4. Consider financing the full payment of your taxes through loans, such as a home equity loan from a financial institution. The interest rate and any applicable fees charged by a bank are usually than the combination of interest and penalties imposed by the IRS.

Options if you cannot pay in full right now

  1. Apply for an installment agreement. The following are options available to individuals that can pay the tax eventually but need more time.
    1. Apply online at http://www.irs.gov/Individuals/Online-Payment-Agreement-Application. Only individuals that owe less than $50,000 can apply online.
    2. If you owe more than $50,000, complete and mail 9465 (Installment Agreement Request) and Form 433-F (Collection Information Statement) to the IRS.
    3. Complete Form 9465 (Installment Agreement Request) if you owe less than $25,000.
    4. You can also call 1-800-829-1040 and speak to an IRS associate to set up an Installment agreement.
  2. If you cannot pay in full immediately, the IRS offers additional time, up to 120 days, to pay in full. No fee will be charged for entering this type of arrangement, however, interest and any applicable penalties will continue to accrue until the liability is paid in full.
  3. If you can’t pay the amount you owe through installments, you can request an Offer in Compromise. In an Offer in Compromise, you’re asking to settle outstanding taxes for less than you owe. Apply for an Offer In Compromise using Form 656. To be considered, you must…
    1. Have insufficient assets and income to pay the outstanding taxes due; or
    2. Paying the amount due would cause an economic hardship or would be unjust (such as losing your home or not able to support the household).

Options if you cannot pay at all

  1. Request the IRS to delay collecting taxes. If you cannot pay your taxes at all, you can request that the IRS delay collection until you are able to pay. This option may be good for you if you don’t have the cash now and need more time to sell property and then use some of the proceeds to pay off the taxes. You may need to complete a Collection Information Statement and provide proof of your financial status. The IRS will still charge applicable penalties and interest until you pay the full amount. Furthermore, the IRS may still file a lien to collect any outstanding taxes. A tax lien is a legal claim against all your current and future property, such as a house or car, and rights to property, such as wages and bank accounts.
  2. Consider filing an Offer in Compromise (stated earlier) with the IRS if you had a life changing event, such as you become disabled and are no longer able to work. The IRS may be able to write off most of the tax debt now if there isn’t long-term expectation of every being able to pay the tax debt.

Contacts if you need additional help with your tax debt

If you have need help working with the IRS on settling your tax debt, the following are two services that you may find helpful:

  1. Taxpayer Advocate Service. Contact them at www.irs.gov/advocate or by phone at 1-877-777-4778. This service helps you if you have problems with the IRS that are causing financial difficulties and…
    1. Have tried but haven’t been able to resolve your problems with the IRS, and
    2. You believe an IRS system or procedure is not working as it should.
  2. Low Income Taxpayer Clinics. You can find a clinic near you also with the income requirements by going to www.taxpayeradvocate.irs.gov and clicking on the Low Income Taxpayer Clinics link located on the right side of the site. Independent from the IRS, these clinics can help you if your income is below a certain level and you need to resolve a tax problem. Usually free or for a small fee, they can provide you with answers to many of your tax questions and educate you on your rights and responsibilities. Also, they can help you if you speak English as a second language and you need representation during audits, appeals, and tax collection disputes.

Vincent Mangiapane, EA
Federal Analyst, Taxbrain

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