If You Can’t Afford To Pay Your Taxes In Full, Here’s What You Should Do
Buckle up, everyone — tax season is among us. If you’re gearing up to file, keep an eye out for the IRS open-file date, which is typically announced sometime in January each year. But if you realized you owe money this year and you physically cannot pay the full amount by the last file date, you’re not completely out of luck. We have some solutions that’ll keep you out of trouble with the IRS and your head above water.
Whether you already predict you’ll owe money or you file and find out how much you owe, you technically don’t have to pay all of your taxes at once if you can’t physically do so. The loophole in the system is called “deferring” your taxes, which basically just means putting off paying the full amount.
Unless you’re a freelancer or sub-contractor, your company gives you the option of how much federal, state and city taxes you want taken out of each paycheck. You’ll likely owe money if you choose the minimum amount of taxes to be taken out of your paycheck or if you’re in a non-salaried position. The business of paying taxes can be a bit tricky, so let us guide you through your concerns.
“If I already know I’m gonna owe a ton but I haven’t filed yet, should I wait?”
Do. Not. Wait. If you wait to file your taxes in the first place and miss the cutoff date, you could risk getting into trouble with the IRS. The tax lords will look more kindly on you for filing and not paying your taxes in full rather than not filing at all.
If you choose not to file by the deadline (usually mid-April each year), you’ll be slapped with penalty fees with interest that could add up to a maximum of 25 percent of your full tax payment. So, if you’re already in a spot to not pay your taxes in full, you sure as hell aren’t in a place to pay 25 percent in fees on top of your tax payment.
“Okay, so how do you defer taxes?”
After successfully filing your taxes, set up a short- or long-term payment installation plan with the IRS. First, try to pay as much as you can up front. Then, pay the rest on the plan.
Apply for the short-term payment plan if you can pay your full tax payment in less than 120 days. You’ll have to pay your taxes in this time period, as well as accrued penalties and interest until the balance is paid in full. There is no setup fee for short-term payment plans when paid by check or direct deposit from an account.
The long-term payment installation is for those who need more than 120 days to pay the full amount. The IRS gives you two options on this plan. Your first option is to have automatic, monthly payments taken out of your bank account for a $31 setup fee plus accrued penalties and interest. Your other option is to pay when you can online for a $149 setup fee plus penalties and interest (it’s $225 when you apply by phone, mail or in-person). If you’re in the low-income bracket and agree to pay electronically, your setup fee may actually be waived or reimbursed, dependent on your situation.
If you need to change your payment plan at any time, you’ll just need to refile your plan online, by phone, mail or in-person. You may have to pay an $89 fee, too (or $43 if you meet the low-income qualifications, though it may be reimbursed).
The Bottom Line
You’re not out of luck. You won’t be paid a visit by the IRS (yet) is you’re not able to pay your taxes immediately. Just be proactive and set up a plan that works for you. Trust us — the IRS doesn’t play, and you shouldn’t either. As long as you’re on top of it, you’ll be golden.