Taxation & Estate Planning

Payment Options for Taxpayers Who Can?t Pay in Full

By Darrin Mish

Taxpayers who owe but can't pay in full have several options available to help them meet their tax obligations and save money by the April 15 filing deadline. First, taxpayers should file their return on time and pay as much as they can with their return. Second, a taxpayer should request a installment payment agreement for the balance. Interest and penalties can add up for taxpayers that don't file and pay on time. Taxpayers can limit these charges by simply filing on time and paying at least some of the balance owed. Interest and penalties will apply to any tax paid after the April 15 deadline, but are based on the balance owed, therefore paying some and owing less will reduce the interest and penalties associated with not paying in full. Additionally, just by filing on time (even if a balance is owed) a taxpayer avoids the much larger 5-percent-per-month late-filing penalty.

There are e-pay options that offer taxpayers the easy and fast ways to make a full or partial payment with their return. Taxpayers can make payments either online or by phone using electronic funds withdrawal or a credit card. Of course taxpayers can still send the IRS a check made out to "United States Treasury." If a taxpayers needs more time to pay and they owe $25,000 or less, a monthly payment plan can be set up online at www.irs.gov. Taxpayers are charged a one-time fee for setting up a monthly payment plan, but as long as the return was filed on time, the penalty for late payment is cut in half as long as the payments are made on time each month. A taxpayer can also request a short-term extension to pay which will give them an additional 120 days to pay in full, there is no fee for this extension but the late payment penalty and interest will still be added to the balance.

Taxpayers that owe more than $25,000 can still get a monthly payment plan but they must do so in writing by filling out an Installment Agreement Request on Form 9465. This form can be filed along with an electronically filed return or a paper return. If it is filed with a paper return it should be attached to the front of the return. Some taxpayers can wait until after April 15 to file and pay. Those eligible get the extra time penalty-free and interest-free without having to ask for it. Eligible taxpayers include: Members of the military serving in Iraq, Afghanistan or other combat-zone localities. Normally, the filing and payment deadline is postponed until 180 days after the service member leaves the combat zone. That's a huge penalty and interest free extension! Taxpayers in federally declared disaster areas also receive interest and penalty free extensions. So this year if you can't pay your taxes in full by April 15th don't panic, make sure you at least file on time, and check your options for a monthly payment plan. If all else fails seek professional representation to help you resolve your unpaid liability.

Full post as published by IRS Problem Solver Blog on August 27, 2008 (boomark / email).