If you can’t pay federal taxes by April 15, you may qualify for a payment plan with the IRS.
9 Things to Know About Setting Up an IRS Tax Payment Plan
Now that you finally got your taxes done, you may owe a bunch of money to the IRS – as in more than you can pay by April 15. Now what? Depending on your tax situation, you might be able to set up a payment plan with the IRS.
That doesn’t mean you can put off filing your return, though. Unless you receive an extension to file, you still must file your federal tax return by April 15 even if you can’t pay the amount owed. But setting up a monthly payment plan with the IRS can help you pay tax owed over time.
Click or swipe to learn how to set up a payment plan to pay off federal income tax due.
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1. Apply for a payment plan online
If you’re a qualified taxpayer or authorized Power of Attorney (POA), you may qualify to apply online on the IRS site for a payment plan and installment agreement to pay off tax owed over months or years.
The IRS offers three payment plan options: Pay the full amount upfront; pay in 120 days or less; pay in more than 120 days. Payment plan options are determined by the amount you owe in taxes to the IRS.
2. Apply by mail or phone
If you don’t qualify to apply online for a payment plan, you might still be able to set up a monthly installment plan by mailing an installment agreement request. You can also apply by phone by calling 800-829-1040 (individual) or 800-829-4933 for a business.
3. Set up a short-term payment plan
You may qualify to apply online for a short-term payment plan – paying the amount owed in 120 days or less – if you owe $50,000 or less in combined tax, penalties, and interest and filed required returns, according to the IRS.
Only individual taxpayers (not businesses) can apply for a short-term payment plan. If you’re a sole proprietor or an independent contractor, you can apply for a short-term payment plan as an individual.
4. Set up a long-term payment plan
You may qualify to apply online for a long-term payment plan – paying in more than 120 days – if you owe less than $100,000 in combined tax, penalties and interest, and filed all required returns, according to the IRS.
Business owners may qualify to apply for a long-term payment plan online if they owe $25,000 or less in tax, penalties, and interest (combined) and filed all required returns. Sole proprietors and independent contractors should apply as an individual for a long-term payment plan.
5. You may have to pay a setup fee
Short-term payment plans don’t charge a setup fee. But if you set up a long-term payment plan (installment agreement) with the IRS and pay monthly through automatic withdrawals, you must pay a $31 “setup fee” plus accrued penalties and interest until you pay the full balance if you apply online. The setup fee may be waived for qualified low-income taxpayers.
Applying for a long-term payment plan by phone, mail or in-person raises the setup fee to $107. The setup fee for a long-term payment plan if you pay (non-automated payments) electronically online, by phone or using the Electronic Federal Tax Payment System (EFTPS) jumps even higher: $149.
6. You’ll pay a penalty
You’ll receive some breathing room to pay taxes with a payment plan, but you’ll still pay interest and some penalties, including a “failure to pay” penalty – 0.5% of tax not paid by April 15 and 0.25% during the installment agreement – until you pay the full balance.
The IRS may also impose other penalties, including a penalty for failure to file of 5% of unpaid tax required to be reported, which is reduced by the failure-to-pay amount if both penalties apply.
7. You’ll also pay interest
If you owe federal tax, the interest on tax, penalties and interest starts on April 15 and accumulates daily. The IRS determines the interest rate once every quarter.
“The IRS doesn’t remove or reduce interest for reasonable cause or as first-time relief. Interest is charged by law and will continue until your tax account is fully paid,” according to the IRS.
8. You may be able to revise your payment plan
If you want to change your payment plan once it’s set up, you can revise the plan using the IRS Online Payment Agreement Tool. You can change your monthly payment amount or monthly due date, convert the existing agreement to pay with direct debit or reinstate a payment plan after default.
If the revised plan doesn’t meet requirements, you’ll be prompted to change the payment amount.
Published by Debt.com, LLC