Category: General Questions
What If I Owe Money to the IRS?
While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once. The IRS has a number of ways for people to pay their tax bill.
The IRS has announced an effort to help struggling taxpayers get a fresh start with their tax liabilities. The goal of this effort is to help individuals and small business meet their tax obligations, without adding unnecessary burden. Specifically, the IRS has announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.
Here are ten tips for taxpayers who owe money to the IRS.
1. Tax bill payments If you get a bill this summer for late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
2. Additional time to pay Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application at www.irs.gov or by calling 800-829-1040.
3. Credit card payments You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Service. To pay by credit card contact one of the following processing companies: Link2Gov at 888-PAY-1040 (or www.pay1040.com), RBS WorldPay, Inc. at 888-9PAY-TAX (or www.payUSAtax.com), or Official Payments Corporation at 888-UPAY-TAX (or www.officialpayments.com/fed). For complete list, click here.
4. Electronic Funds Transfer You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.
5. Installment Agreement** You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments. For more information, go to www.irs.gov.
6. Online Payment Agreement If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application at IRS.gov
7. Form 9465 You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed. To print a copy of this form, click here and select Form 9465.
8. Collection Information Statement You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement. To print a copy of this form, click here and type in 433F.
9. User fees If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement (if applying by phone, mail or in-person) is $107 for agreements where payments are direct debited from the bank account. The user fee for a new agreement (if applying online) is $31 for agreements where payments are direct debited from the bank account. For eligible individuals with lower incomes, the fee can be reduced to $43. For more information, go to www.irs.gov.
10. Check withholding Taxpayers who have a balance due may want to consider changing their W-4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine the amount that should be withheld.
For more information about the Fresh Start initiative, installment agreements and other payment options visit www.irs.gov. IRS Publications 594, The IRS Collection Process, and Publication 966, Electronic Choices to Pay All Your Federal Taxes, also provide additional information regarding your payment options. These publications and Form 9465 can be obtained from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
The IRS fee for setting up an installment agreement to make payments by check, money order, credit card, payroll deduction or direct debit installment agreement varies based on whether it is a short-term or long-term agreement and whether you use direct debit or other payment method. Please click here for the different payment agreement costs and fees.
If you can pay the full amount you owe within 120 days, call 1-800-829-1040 to establish your request to pay in full. If you can do this, you can avoid paying the fee to set up an installment agreement. Instead of calling, you can apply online. The fee for setting up an installment agreement for each payment method is also shown below.
|Payment Method||Set-Up Fee|
|Short-term payment plan (120 days or less) (fees may apply if paying by card)||$0|
|Long-term payment plan (more than 120 days - direct debit from checking account)||$31|
|Long-term payment plan (more than 120 days - any other electronic method such as direct pay or debit/credit card. May also pay by check or money order)|
$43 if low income