If at calculate your tax return you discover that you have to pay a bill, you are not the only one. An estimated 30 million people ended up owing taxes last year alone.
Now if you owe the government money, but you can’t pay your tax bill, what should you do? First of all: don’t panic. Every year 5 million people request assistance with payments. Follow these steps and you will avoid the IRS imposing heavy penalties on you.
1. Make your statement anyway
Filing your return, even if you owe money, leaves you in a much better situation than not filing it. Ignoring your tax bill is similar to ignoring any other type of important invoice or payment. You will accumulate heavy fines and penalties, and you will end up with a greater debt than you originally had. The late payment penalty is 5% per month of your balance, for each month that you do not file your return.
Failure to pay your tax bill can have serious consequences. You can have the government garnish your wages or collect money directly from your bank account. You could also face a tax lien on your property, which could force you to leave your home.
Remember that this 2020, you have until July 15 to file your tax return. The IRS delayed the delivery date due to the crisis caused by the coronavirus outbreak.
Read more: The best tax filing software in 2020
2. Contact the IRS
As soon as you know you won’t be able to pay your tax bill, call the IRS at 800-829-1040. Depending on your situation, you may be eligible for a payment extension or some other agreement.
If you have the financial means, pay as much as you can. This will show the IRS that you have some resources to pay your tax bill and that you are not trying to avoid it. It means that you are acting responsibly instead of ignoring your bill.
3. Request an extension
If you need additional time to collect payment money, the IRS may accept a short-term extension for your bill. They can give you up to 120 days to pay your bill without penalties. But keep in mind that if you don’t pay before the deadline, you could accumulate interest and fees. Requesting an extension is a good idea to avoid a payment plan, since it includes fee charges.
4. Negotiate a payment plan
An installment payment plan allows you to pay the government a fixed amount depending on when you earn and how much you can pay. With this system, you will make continuous payments until your tax invoice has been paid in full.
There are different payment plans available, depending on your financial situation. You must complete IRS Form 9465, which is an Application for an Installment Payment Plan. This form allows you to request a monthly installment payment plan from the IRS. You may have to pay some fees, such as a $ 10 user fee. This system guarantees you to obtain an installment payment agreement if you are up to date with your taxes, you owe less than US $ 10,000 and you promise to pay your bill within the next three years.
Please note that payment plans charge interest. Currently, the interest rate is 3% and is calculated daily.
5. Request a Transaction Offering
An Offering of Transaction (OIC) means that you enter into an agreement with the IRS to pay you a lesser amount than you originally owed. If you have no way to pay your full debt and don’t have resources or assets, or if paying your tax bill would lead to an economic disaster in your daily expenses (for example, not being able to pay your rent), an OIC can be a good option.
You can submit an application, but that doesn’t mean the IRS will approve it. The IRS will evaluate and verify if you are eligible for an OIC. There is a $ 186 fee for filing this application, but low-income workers are exempt from it.
If you qualify and are approved an OIC, you can pay the full amount or in monthly installments for up to a maximum of 24 months. Keep in mind that even when the IRS is evaluating your eligibility, you should continue making your monthly payments to avoid being rejected.
Other things to consider
Once again: before you panic, remember that your situation is not unusual. If you’re not sure if you can pay your bill in full on tax day, talk to the IRS about your options.
We also recommend that you see what deductions are being applied to your salary. Ask the Human Resources department to verify how much they are holding you. Sometimes not having the correct withholdings can end up owing you money when filing your taxes. If you have a secondary source of income, you may also owe more taxes for that.
Don’t be afraid to discuss your situation with a qualified tax professional. Not all experts are the same (and some aren’t even real), so be sure to choose your tax professional carefully before handing him personal documentation. Getting professional help can make the difference between owing money and getting a refund.