If you put off filing your tax return and owe the government money, you could be in hot water. You’ll not only get penalized for filing late, but you’ll also have to pay interest and penalties on the unpaid taxes you owe.
There are several IRS payment options and payment plans for you to pay your federal taxes over time if you miss the deadline. The best thing you can do is file and pay taxes on time to avoid paying stiff late penalties to the IRS.
Short-Term Tax Payment Plans
If you don’t have the money and can’t pay taxes due when you file but will be able to pay soon, you can apply for a short-term payment agreement with the IRS. Under a short-term payment agreement, the IRS can offer you an extension of up to 120 days to pay your tax debt. You will not have to pay a fee to enter into a full payment agreement, but your tax debt will accrue interest and penalties until you pay it off in full. You can apply online, by phone, by mail or in-person.
There is no setup fee for this plan, no matter what method you use to apply. You will not need to pay a fee if you make IRS payments via automatic transfer from your checking account, check or money order, but fees do apply if you pay with a debit or credit card. Make sure you have your bank routing number ready before scheduling your payment.
If you’re wondering how to set up a payment plan with the IRS, you can apply online using the Online Payment Agreement tool if you owe less than $100,000 in combined tax, penalties and interest. If you don’t qualify to apply online, you can apply by mail, phone or in-person using Form 9465 and Form 433-F. To apply by phone, call 800-829-1040, or the phone number that appears on your bill or notice.
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IRS Installment Agreement
If you need more than 120 days to pay your tax bill, consider applying for an IRS installment payment plan — also known as a long-term payment plan. It’s convenient to apply and pay online, but you can also call the IRS or the number listed on your tax bill to apply, or apply by mail or in-person. Each set-up method comes with a different fee amount, so choose the method that is both convenient and affordable for you.
After you enter an installment agreement, any future IRS refund payment you are owed will be applied to your debt until it is paid off. If you owe less than $50,000, your IRS tax payment plan can spread the payments over the shorter of 72 months or the longest time the IRS has to collect the debt. If you owe between $50,000 and $100,000, your plan can spread the payments over the shorter of 84 months or the longest time the IRS has to collect the debt.
Here are the amounts you’ll have to pay for installment agreement fees:
- Long-Term Installment Agreement With Direct Debit, Online Set-Up Fee: $31
- Long-Term Installment Agreement With Direct Debit, Phone, Mail or In-Person Set-Up Fee: $107
- Long-Term Installment Agreement With Any Other Payment Method, Online Set-Up Fee: $149
- Long-Term Installment Agreement With Any Other Payment Method, Phone, Mail or In-Person Set-Up Fee: $225
- Restructure or Reinstate a Payment Plan Set-Up Fee: $89
If you qualify for Low-Income Taxpayer Status, the fees for setting up a payment plan will be lower:
- Long-Term Installment Agreement With Direct Debit Set-Up Fee: Fee waived
- Long-Term Installment Agreement With Any Other Payment Method Set-Up Fee: $43, which might be reimbursed if certain conditions are met
- Restructure or Reinstate a Payment Plan With Direct Debit Set-Up Fee: $0
- Restructure or Reinstate a Payment Plan With Any Other Payment Method: $43, which might be reimbursed if certain conditions are met
In addition to the above fees, all individuals regardless of their income level will have to pay the accrued penalties and interest until the balance is paid in full.
You can apply online using the Online Payment Agreement tool if you owe less than $50,000 in combined tax, penalties and interest, and filed all required returns. If you don’t qualify to apply online, you can apply by mail, phone or in-person using the installment agreement forms — Form 9465 and Form 433-F. To apply by phone, call 800-829-1040, or the phone number on your bill or notice.
Offer in Compromise
An offer in compromise is a proposal you make to the IRS to pay less than you owe to satisfy your tax debt. An offer in compromise should be your last resort — and you should take this route only if paying the full amount will cause financial hardship.
To be eligible for an offer in compromise, you must meet three criteria. You must have:
- Filed all your returns
- Paid all required estimated taxes for the current year
- Made all required federal tax deposits for the current quarter if you own a business and employ people
If you haven’t made all your payments, you can make your IRS payment online through the electronic federal tax payment system or through IRS direct pay. You can also mail payments to the IRS payment address listed on your notice.
The IRS will accept an offer in compromise under certain circumstances. The three conditions are:
- If there is a genuine tax law dispute regarding whether you owe the tax.
- If the IRS doubts the tax debt is fully collectible because of a taxpayer’s limited assets and income.
- If requiring payment in full would cause economic hardship or be unfair based on a taxpayer’s individual circumstances.
Generally, the filing fee is $186. If you’re making the offer based on doubt that you owe the money, however, or if your income is less than 250 percent of the poverty level, the filing fee is waived.
Once you make an offer in compromise you must submit a nonrefundable payment. That amount must be equal to either:
- 20 percent of your proposed amount if you’ll be making fewer than five total payments
- The amount of your first payment if you’ll be paying in six or more payments
If your offer is rejected, the 20 percent payment will be applied to your tax liability.
IRS Payment Plan for Small Business Owners
If you are a small business owner, you might qualify for a long-term payment plan which will allow you to pay your taxes in more than 120 days. You can apply for a long-term payment plan online if you have filed all required returns and owe less than $25,000 in combined tax, penalties and interest. Note that if you are a sole proprietor or independent contractor, you should apply for an individual payment plan.
To apply for a long-term payment plan as a business owner, you will need:
- Your Employer Identification Number
- Date the business was established
- Address from most recently filed tax return
- Your caller ID from notice
Here are the fees you’ll have to pay to apply for a long-term payment plan as a business:
- Long-Term Installment Agreement With Direct Debit Set-Up Fee: $31
- Long-Term Installment Agreement With Any Other Payment Method Set-Up Fee: $149
With whatever payment method you choose, you will also have to pay accrued penalties and interest until the balance is paid in full. Additional fees apply when paying by card and setup fees might be higher if you apply for a payment plan by phone, mail or in-person.
More on Taxes
- When Will You Get Your Tax Refund? Here’s When to Expect That Check
- 10 Tax Loopholes That Could Save You Thousands
- 7 States With No Income Tax
- Watch: How to Legally Cheat Your Tax Bracket
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Gabrielle Olya contributed to the reporting for this article.