While many commercials are running about getting a big tax refund, not everyone is happy about filing. Depending on your situation, you might be stressing out because you didn’t pay enough taxes last year and now owe Uncle Sam.
If you need help paying your taxes because you don’t have the money now to pay the total due, there are several options available, including filing for a tax extension and working out a payment plan with the IRS.
3 Options If You Can’t Afford Your Tax Bill
1. Request a Tax Extension — Form 4968
Looking at your 2014 taxes, if you file and find out that you owe the IRS, consider filing an extension (Tax Extension Form 4968) so you can have more time to come up with the money. Until you pay what is owed, you’ll incur penalties that will increase your total.
If you’re looking to raise money for your tax bill, here are some tips on how to trim your budget.
2. Offer a Smaller Amount — Form 656
I was surprised to learn that you can request that the IRS accept a smaller amount as payment. It’s called an “offer in compromise.” Of course, be prepared to fill out a form (Form 656) and take care to explain, in detail, why paying the full amount would be an extreme financial hardship.
With an offer in compromise, you can submit a request to pay a small lump sum, or to send a few payments spread out over time. As with everything you send to the IRS, make sure your explanation for the smaller amount is reasonable and verifiable.
3. Set Up a Tax Payment Plan — Form 9465
If you already received noticed from the IRS about the taxes you owe, believe it or not, the IRS will work with you by creating a payment plan that fits your budget.
You should be aware of a couple issues before proceeding, however:
- There are fees to set up your payment plan. If you want to set up a plan where the IRS directly debits your bank account, it costs $52. A standard set up fee for a payment plan costs $120 (but if your income is limited, you might be able to get the reduced rate of $43).
- You’ll need to place a call. Note the number on your bill or notice and review what you need to complete for your specific case. Remember to write down everything, including the name of the agent you spoke with on the phone and when you called.
- Fill out the appropriate form. Form 9465-FS works if you owe less than $50,000; Form 433-F is required if you owe more than $50,000. Additionally, submit all the information requested. You don’t want to incur more penalties by not getting the ball rolling.
Before you apply for a payment plan, double check that you’ve submitted all the proper tax forms and work out the numbers on what you can afford to pay. Just remember that any future refund you might qualify for will go toward your tax debt until it is completely paid off.