What you should do if you can't pay your IRS tax bill
The IRS recommends filing your return by April 15 – and paying as much as you can, as soon as you can
Taxfyle CEO and cofounder Richard Lavina discusses his tax filing solution and the changes to the tax system this season.
It’s tax season and as many people prepare for the unfortunate truth that they may owe the IRS this year, some may be worried about being able to afford those obligations.
So what should you do if you can’t afford to pay what you owe the tax agency?
One thing you shouldn’t do is fail to file your taxes. That will result in a penalty.
If you don’t file your return, the penalty is 5 percent of the unpaid taxes for each month that a return is late. The penalty begins accruing the day after returns are due — up to a maximum of 25 percent of your unpaid taxes. The amount is reduced by the failure to pay the penalty amount during a month where both penalties apply. The maximum penalty you’ll pay for both in any given month is 5 percent.
When a return is filed more than 60 days after the deadline, it is subject to a minimum late filing penalty that is the lesser of either 100 percent of the tax required to be shown on the return that was not paid on time, or a specific dollar amount that has been adjusted for inflation.
The penalty applies for a full month, even if it is less than 30 days late.
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As such, the IRS recommends filing your return by April 15, paying as much as you can, even if it is not the total, as soon as you can.
To potentially qualify for an installment plan, you can attach a Form 9465 to the front of your return. The IRS charges a $43 fee to set up an installment plan, and an individual will pay interest plus a late payment penalty on the unpaid balance.
If you cannot pay any of what you owe, you can also apply for an “offer in compromise,” which would potentially allow you to settle your debt for less than what you owe.
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Further, being proactive and communicating with tax authorities can help position you for a better outcome. If you have suffered a recent hardship, for example, the IRS may be open to negotiating a settlement with you, typically on penalties and interest (not usually the tax).
Even if you file for an extension, you will not be exempt from paying any tax obligations.
If you are unsure about how to handle your financial situation, consult or request help from a qualified professional.