If you’re not able to pay the tax you owe by your original filing due date, the balance is subject to interest and a monthly late payment penalty. There’s also a penalty for failure to file a tax return, so you should file timely even if you can’t pay your balance in full. It’s always in your best interest to pay in full as soon as you can to minimize the additional charges.
If you can’t pay in full, you should pay as much as possible to reduce the accrual of interest on your account. You may consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card. The interest rate and any applicable fees charged by a bank or credit card company are usually lower than the combination of interest and penalties set by the Internal Revenue Code.
A payment plan is an agreement with the IRS to pay the taxes you owe within an extended timeframe. You should request a payment plan if you believe you will be able to pay your taxes in full within the extended time frame. If you qualify for a short-term payment plan you will not be liable for a user fee. Not paying your taxes when they are due may cause the filing of a Notice of Federal Tax Lien and/or an IRS levy action.
Payment options include full payment, short-term payment plan (paying in 120 days or less) or a long-term payment plan (installment agreement) (paying in more than 120 days).
Payment Plans with the IRS are another means to satisfy debts to the IRS and forestall drastic collection activity by the IRS such as a levy upon wages, salaries or bank accounts which can have devastating financial repercussions. Our Law Office will work with you to devise the most favorable means of resolving indebtedness to the IRS, in including full payment agreements or installment agreements.
Full Payment Agreements of up to 120 days
If you can’t pay in full immediately, you may qualify for additional time –up to 120 days– to pay in full. There’s no fee for this full payment agreement; however, interest and any applicable penalties continue to accrue until your liability is paid in full.
If you’re not able to pay your balance in full immediately or within 120 days, you may qualify for a monthly installment agreement. An installment agreement allows you to make a series of monthly payments over time and the IRS offers various options for making monthly payments. However, the IRS charges a user fee when you enter into a standard installment agreement or a payroll deduction agreement.
Before your installment agreement request can be considered, you must be current on all filing and payment requirements. Taxpayers in an open bankruptcy proceeding aren’t eligible. You must specify the amount you can pay and the day of the month. You should base your monthly installment payment amount on your ability to pay and it should be an amount you can pay each month to avoid defaulting. Your payment date can be any day from the first to the 28th. The IRS expects to receive your payment ON the date you indicate, so be sure to figure mailing time (10 days) into the date you select. Usually within 30 days, the IRS will respond to your request to advise you if it has approved it, denied it, or needs more information.