You might be on the verge of panic if tax day is approaching and you know you can’t save enough money to pay your federal income tax by that date. However, you have options if you’re unable to pay the Internal Revenue Service (IRS) on time.
Late Payment Penalties and Filing Delays
The IRS imposes two separate penalties for filing your tax return late and for late tax payment.
Interest Payments
Interest will be charged on the amount you owe as tax until the tax debt is paid in full, in addition to penalties.
Installment Payment Plan
If you file your return on time and receive approval from the IRS to pay your taxes in installments, the penalty rate on the amount due will be 0.25% for each month the installment agreement is in effect.
Credit Card Payments
You can use a major credit card (Visa, MasterCard, American Express, or Discover) to pay your tax bill if you don’t have the cash needed to pay it when you file your return. You must do this through one of three IRS-approved service providers: PayUSAtax, Pay1040, or ACI Payments, Inc. A fee of 1.96% to 1.99% of the amount you pay will be charged, with a minimum fee of $2.69, $2.58, or $2.50 respectively.
Offer in Compromise
The IRS may accept a lesser amount than the full amount you owe through an Offer in Compromise (OIC) if you owe a sizable amount that you could never realistically pay. This is simply a settlement agreement that allows you to pay the largest amount the IRS believes you can afford over a reasonable period.
Frequently Asked Questions (FAQs)
Can you go to jail if you can’t pay your income taxes? What if I can’t pay my taxes in one lump sum?
Remember that not having the money to pay taxes will not land you in jail. This is not the same as tax evasion, which involves avoiding tax payment by filing an incorrect return. However, failing to file a tax return could lead to jail time, so it’s always essential to file your return.
You can set up an installment payment plan, and it’s best to inform the IRS immediately to avoid unnecessary penalties. If the amount you owe is unmanageable, you might negotiate for a reduced payment.
Sources:
Internal Revenue Service. “Frequently Asked Questions/Collection Procedural Questions 3.”
Internal Revenue Service. “Understanding Your CP504 Notice.”
Internal Revenue Service. “Tax Time Guide: Electronic Tax Payment and Agreement Options Available to Taxpayers Who Owe.”
Internal Revenue Service. “Topic No. 202 Tax Payment Options.”
Internal Revenue Service. “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges.”
Internal Revenue Service. “Pay Your Taxes by Debit or Credit Card.”
Internal Revenue Service. “Form 656: Offer in Compromise,” Page 1.
Internal Revenue Service. “Offer in Compromise.”
Frost & Associates. “Is Jail a Possibility If You Fail to File Your Taxes?”
Source: https://www.thebalancemoney.com/cant-pay-income-taxes-1289326
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