When You Owe the IRS

Most Americans either dread April—or can’t wait for it. It all depends on whether you think you’ll get a refund or owe the IRS. Many taxpayers have owed taxes before, and they make it work. However, what if you simply don’t have the means to make that payment? It turns out that Uncle Sam is a pretty flexible guy. After all, he wants what’s owed to him, no matter how that payment is made.

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The IRS calls an immediate, timely payment on taxes due “Pay Now” and offers several options to do so. The most popular is the IRS Direct Pay which is safe and secure. You simply allow a payment from your bank account. For those who file electronically, you can even opt for an electronic funds withdrawal from checking or savings accounts when you file.

For those who are wary about using Direct Pay or signing up for a withdrawal when filing, the Electronic Federal Tax Payment System is another option. You can make payments online or even by phone, although enrollment is required for a phone payment. EFTPS is a favorite with taxpayers who like to schedule payments in advance, including quarterly tax payments and excise taxes. The system also keeps a user-friendly history so you can easily see what you’ve previously paid and what’s scheduled.

Some taxpayers prefer the same-day wire transfer option from their bank, which the IRS welcomes. However, check with your bank to see if there are any fees on their end. Some banks can charge a hefty wire transfer fee, and wire transfers aren’t any more secure than other methods of payment. Of course, the IRS always welcomes checks or money orders sent along with the invoice you’ll receive.

Scheduling Payments

If you can’t pay the full amount upfront, don’t worry—you’re far from alone. The IRS offers payment plans starting with a short-term plan with a 120-day window. Short-term plans don’t have any fees or interest, and having four months of fee-free time to pay is a welcome reprieve for many taxpayers.

There are also long-term monthly payment plans available. However, these come with a $120 fee, which can be reduced to just $52 if you opt for direct debit withdrawals. For individuals who owe over $50,000 and businesses that owe over $25,000, you’ll also need to provide a financial statement when you apply for a payment plan.

Finally, there’s the IRS Offer in Compromise. This option is an agreement with the IRS where you can settle your debt for less than the full amount. It’s a way to give taxpayers who get in over their heads a fresh start. Before immediately jumping on this option, know that it isn’t a guarantee. Not everybody who applies will be accepted. You can get an idea of what the IRS will say with the Offer in Compromise Pre-Qualifier Tool, which is free to use. If you only owe a small amount, if the IRS deems your income as high enough to ultimately make the full payment, or if there’s evidence that you’ll return to a similar situation in the future, the IRS might not approve your application. However, there’s no harm in trying.

There are also lesser-known paths to payment including requesting a temporary suspension of collection efforts. The most powerful tool you have is communication. Talk to the IRS. They want to collect, and they know working with you is the best way to make that happen. It’s surprising to many taxpayers just how willing the IRS may be to compromise and allow for extra time for payment. The worst approach is simply ignoring the inevitable. Working with a professional including a CPA and, sometimes, a tax lawyer can also provide peace of mind and a better outcome.

Tax season can be incredibly stressful, particularly if you owe money to the government. This stress has very harmful effects on a lot of people, but if you are finding yourself in this stressful situation, there’s no need to fret. You have options.

Guest article written by Julie Morris