We’re hearing from many of our Tax Professionals that, due in part to the 2017 Tax Cuts and Jobs Act, many of their clients either owe tax bills they didn’t expect or they are receiving lower-than-expected refunds. Owing a tax bill can be frustrating. The good news is that if you find yourself in this situation, all hope is not lost.
First and foremost, even if you can’t pay the tax money you owe, file your return by the April 15 deadline! Penalties for not filing a tax return or extension are higher than penalties for not paying taxes owed. Fortunately, you have options:
- Online Payment Agreement – If you have filed your returns and are an individual taxpayer owing $50,000 or less in combined income tax, penalties, and interest, or you are a business owner owing $25,000 or less in payroll tax, you could qualify for an Online Payment Agreement with the IRS. This agreement allows you to pay in under 120 days, or you can take up to six years to pay if you need more time. There may be fees, interest, and penalties that apply until the amount owed is paid in full, and you have to agree to automatic withdrawal. Many taxpayers qualify for an Online Payment Agreement. Fill out an application and find out immediately if you qualify.
- Installment Agreement – An Installment Agreement is also a payment plan, but you complete Form 9465 and submit the application and make arrangements over the phone, by mail, or in person at a local IRS office. The setup fee may be higher if you don’t apply online or agree to automatic withdrawal.
- Delaying Collection – The IRS may delay collection if it’s determined you are unable to pay – the delay in payment is only until your situation improves. The IRS may ask you to complete a Collection Information Statement to review your ability to pay; penalties and interest may apply until the amount owed is paid in full. The IRS may also file a Notice of Federal Tax Lien against your property until the tax requirement is paid.
- Offer in Compromise – Some taxpayers experiencing financial hardship may be able to settle their tax bills for less than what they owe. If a taxpayer experiences serious illness or is the victim of a disaster – what the IRS considers unplanned or special circumstances – making it difficult for the taxpayer to provide for them themselves and their family, an Offer in Compromise may be considered by the IRS.
Even though an unexpected tax bill may be challenging, there are alternatives to not paying taxes owed or not filing your return. It’s also not too early to start planning for the 2019 tax year by checking your withholdings to ensure you aren’t having too little withheld from your paychecks. The IRS offers an online Withholding Calculator to help you avoid surprises at tax time. Being proactive is one key to being ready when tax season rolls around.