Every year, there are taxpayers who find themselves facing down a tax bill that is simply beyond their ability to pay. It can be a shock and can place a lot of stress on you as you try to find ways to pay off the full amount of the tax debt before the April 15th deadline. But if you’re going through your finances and simply not seeing a way to pay your tax bill before then, there may be other options available to you. Keep reading to learn about a few of the more common IRS payment options.
Extension to Pay
If you believe you can pay your tax debt, but just need a little bit more time to get the funds together, then you can request an extension to pay, also known as a short-term payment plan. This gives you an additional 120 days to put together the full payment amount and pay your debt in full. It’s an ideal solution if you simply need time to liquidate some assets or open a line of credit.
Short-term payment plans are usually free to set up. However, please be aware that you will still continue to accrue late fees and interest on any amount that you owe until the debt is paid off. So, you should send in your payment as soon as the funds are available instead of waiting the full 120 days, if at all possible.
Please also be aware that filing an extension on your return is not the same as getting an extension to pay. When you file for an extension, you’re given an additional six months to submit your full tax return, but are still expected to pay any taxes owed by April 15th. To get an extension on paying your debt, you need to call the IRS or fill out their online payment agreement application, or have a certified public account in Provo do it for you.
Monthly Installment Plans
If you need more than 120 days to acquire the funds to cover your tax debt, you can request a long-term payment plan using the link provided above or by requesting it from the IRS over the phone. A long-term payment plan requires a bit more setup, and there’s an application fee to get one started. However, they’re still quite easy to apply for and the IRS is usually very willing to approve these for taxpayers who are earnestly trying to pay off their tax debts.
Once approved for a payment plan, you’ll be expected to pay monthly installments on your tax debt until it’s completely paid off. It’s usually best to do this via direct debit or payroll deductions, and doing so can actually help you avoid a tax lien, depending on how much you owe. You will continue to accrue fees and interest on your tax debt until it’s paid in full.
However, once your payment plan is ended, you or your CPA can contact the IRS and request a first-time abatement of penalties—assuming, of course, that this is your first time not paying your taxes.
What If You Just Can’t Pay?
If you don’t see any feasible way to pay your tax debt, even with a long-term payment plan, there may still be a couple of options available to you. The first is to request that your debt be placed in a “currently not collectible” (CNC) status. This places a hold on tax bill collection actions until your financial situation improves. CNC status strictly limits your expenditures to necessary living expenses; the IRS will check your finances every year, and if they find that your income exceeds the minimum to cover necessary living expenses, the CNC status will be lifted.
To request CNC status, you’ll need to call, write, or visit the IRS in person. One of our accountants can also do this on your behalf, but we will need to receive the necessary supporting documents to prove your financial hardship if you hope to qualify.
The second option for those who simply don’t have the funds for a payment plan is an offer in compromise, or OIC. Qualifying for an OIC is quite difficult, so we strongly recommend you work with an experienced CPA to fill out the OIC application packet. However, if you do qualify, you can settle your tax debt for less than what you owe.
An OIC allows you to submit an offer of what you believe you can pay on your tax debt. The IRS will examine this offer and thoroughly investigate your finances and your assets. If they determine that your offer is the most they can reasonably hope to collect from you, then they’ll approve your offer. You’ll then have to pay the full amount offered, as well as continue filing and paying your taxes for the next five years. Assuming you do this, any remaining tax debt will be written off.
If you find yourself facing a large tax bill that you can’t afford to pay by April 15th, please contact Biesinger & Kofford CPAs to speak to a certified public accountant in Provo. We can help you figure out what payment plans you may qualify for, and will contact the IRS on your behalf to help you settle your tax debt.