Taxpayers who have unpaid tax bills don`t have to panic about how to pay their taxes. The process of applying for instalment agreements is relatively quick and painless, although penalties and interest can add up over time. Individuals who are unable to pay their federal tax bill and do not make arrangements with the IRS may be subject to the IRS collection process and more penalties and interest than if they had made arrangements in advance to make instalment payments. For more information, see IRS #202: Tax Payment Options. Every year, many Americans file their taxes and find that they owe more income tax than they can afford to pay immediately. In addition, many taxpayers have to repay their taxes and have no idea how to pay their taxes. However, the IRS has now updated its website to allow taxpayers to change their instalment payment agreements online. Individuals can now review their payment dates and even the terms of their agreement, including the payment method and other details. Authorized representatives may also access and do so on behalf of their customers. Any taxpayer who owes more than $50,000 must also file Form 433-F: Collection Information Return with Form 9465, which is also not possible online.
The IRS waives the $31 online setup fee for low-income individuals who make direct debit payments. Low-income taxpayers also pay a reduced fee – $43 instead of $149 – if they cannot make payments by direct debit or if the fee can be waived in full. Taxpayers who do not comply with their instalment payment plans can apply for reinstatement, but they cannot ignore their previous agreement by creating a new one. Individuals who are already making payments under a remittance agreement with the IRS are not eligible to use Form 9465 and should contact the IRS at 1-800-829-1040 if they need to make arrangements to pay additional amounts. People who should also call instead of filing Form 9465 include those who are bankrupt and want to make an offer to compromise. Taxpayers who cannot pay their tax payable can file Form 9465 to establish a monthly payment plan if they meet certain conditions. Any taxpayer who owes no more than $10,000 will automatically receive their application for an approved payment plan with the following conditions: If you owe more than $50,000, you cannot file electronically and must return a paper-completed IRS Form 9465 with the original signatures. You can do this by attaching it to the front of your tax return at the time of filing. The form can also be submitted at any time. As a general rule, refunds must be made within 72 months or less, depending on the amount you owe.
A one-time installation fee is also charged. The amount depends on how you pay. Here are the options: There is an $89 fee to modify or terminate the instalment payment agreement ($43 for low-income taxpayers). In addition, interest and penalties are applied to the outstanding balance until it is paid. The IRS charges a daily compound interest rate equal to the short-term federal funds rate plus 3%, which is calculated quarterly. In addition to the interest charged, the IRS will also impose a 0.5% non-payment penalty on the outstanding balance each month or part of a month up to a maximum of 25%. For taxpayers who file their return on time and have a installment plan, the penalty drops to 0.25% for each month the remittance plan is in effect. Fortunately, the Internal Revenue Service (IRS) has a program that allows taxpayers to pay taxes in monthly installments instead of a large, one-time lump sum. If you are in this position, you can implement a installment payment agreement by completing Form 9465: Request for a Remittance Agreement with the IRS. But keep in mind that penalties and interest on the outstanding balance will still apply until you pay the taxes due. The advantage of an installment plan is obvious: it gives taxpayers more time to pay their federal taxes in an orderly manner.
As long as the terms of the agreement are respected and the taxpayer is able to make payments, all collection efforts by the IRS or private collection agencies will cease. Eligible individuals can also receive a six-month extension to file their tax return and possibly pay their tax bills if they experience certain financial difficulties. Reconsider this by filing Form 13844 Request for Reduced User Fees for Instalment Payment Agreements. Total penalties and interest can easily be as high as 9% to 12% per year, and taxpayers must be prepared to pay this amount in addition to their principal balance. For this reason, taxpayers are strongly advised to do more than the minimum monthly payment whenever possible. Fred files his 2019 tax returns and owes a total of $7,000. He files Form 9465 with his tax return and creates a 36-month payment schedule. If the federal funds rate is 3%, IRS Fred charges a 6% interest rate on the outstanding balance. If the penalty for non-submission is 0.5%, he pays 6% additional penalties each year until the balance is repaid – 12% of $7,000 equals $840, although this amount decreases monthly when the principal amount is repaid. Several payment methods are available to taxpayers. You can send personal checks, bank checks or money orders. In addition, they can withdraw money directly from their bank accounts or pay by credit card.
The Federal Electronic Tax Payment System (TVET) can also be used (this requires separate registration). However, an important factor to remember is that the payment must be absolutely positive on the date specified in the agreement. Whether or not you can use Form 9465, there are actually a variety of solutions you can try if you receive an unexpected bill from the IRS. It`s also $225 if you set up payroll deduction for what you owe and you`ll also need to fill out IRS Form 2159: Payroll Agreement. You can access Form 9465 from the IRS website or by calling 1-800-829-1040. Payments can be made between the first and the 28th. of each month. If the agreement stipulates that the taxpayer must make the payment no later than the 15th of each month and the payment is not made, the agreement is immediately considered to be in default. Therefore, those paying by cheque or money order are advised to submit their payments at least seven to 10 business days before the due date to ensure their timely receipt. If you owe taxes, penalties and interest of $50,000 or less, it is also possible to avoid filing Form 9465 and instead complete an online payment agreement (takeover) application.
