If you owe money to the IRS and can’t pay it on time, don’t panic. The IRS offers a variety of payment options where taxpayers can pay immediately or arrange to pay in installments. However, you might face IRS penalties and interest. Below we will go through what you should do if you owe money to the IRS and the steps you should take, as well as all you need to know about the process.
File an Extension
You can get an extension to file by submitting Form 4868 to the IRS. The IRS will provide you up to 120 days to pay your full tax balance. While there is no cost to request an extension, there is a penalty of 0.5% per month on the unpaid balance. This means that you should aim to pay your tax balance at the time you submit the form 4868 in order to save yourself from the interest and penalties on any unpaid balance.
In order to get more information, you can call the IRS or consult a tax professional. This way you can find out whether you are eligible for a tax credit or a deduction that you overlooked.
Set Up a Payment Plan
Taxpayers can set up monthly payment plans, called installment agreements. This agreement allows you to pay back what you owe over time, but it is important to know that the type of agreement you can get depends on the amount you owe and how soon you can pay the balance.
Additionally, if you think that you can’t pay off your balance in 84 months (7 years), don’t apply. After the Taxpayer First Act, this period was extended from 5 to 7 years, allowing the minimum payment to be what you owe divided by 84.
Furthermore, you should take into consideration interest, penalties, and fees. There is a one-time processing fee of $149 to set up the plan, but this drops to $31 if you apply for the installment agreement online and agree to pay the monthly fee by direct debit. If you are considering applying, you can apply online using the Online Payment Agreement Application on the IRS website.