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While you probably don\u2019t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can\u2019t pay taxes on time? Here\u2019s a look at the options.<\/p>\n
Most importantly, don\u2019t let the inability to pay your tax liability in full keep you from filing a tax return properly and on time. In addition, taking certain steps can keep the IRS from instituting punitive collection processes.<\/p>\n
Common penalties <\/strong><\/p>\n The \u201cfailure to file\u201d penalty accrues at 5% per month or part of a month (to a maximum of 25%) on the amount of tax your return shows you owe. The \u201cfailure to pay\u201d penalty accrues at only 0.5% per month or part of a month (to 25% maximum) on the amount due on the return. (If both apply, the failure to file penalty drops to 4.5% per month (or part) so the combined penalty remains at 5%.) The maximum combined penalty for the first five months is 25%. Thereafter, the failure to pay penalty can continue at 0.5% per month for 45 more months. The combined penalties can reach 47.5% over time in addition to any interest.<\/p>\n Undue hardship extensions <\/strong><\/p>\n Keep in mind that an extension of time to file <\/em>your return doesn\u2019t mean an extension of time to pay<\/em> your tax bill. A payment extension may be available, however, if you can show payment would cause \u201cundue hardship.\u201d You can avoid the failure to pay penalty if an extension is granted, but you\u2019ll be charged interest. If you qualify, you\u2019ll be given an extra six months to pay the tax due on your return. If the IRS determines a \u201cdeficiency,\u201d the undue hardship extension can be up to 18 months and in exceptional cases another 12 months can be added.<\/p>\n Borrowing money<\/strong><\/p>\n If you don\u2019t think you can get an extension of time to pay your taxes, borrowing money to pay them should be considered. You may be able to get a loan from a relative, friend or commercial lender. You can also use credit or debit cards to pay a tax bill, but you\u2019re likely to pay a relatively high interest rate and possibly a fee.<\/p>\n Installment agreement<\/strong><\/p>\n Another way to defer tax payments is to request an installment payment agreement. This is done by filing a form and the IRS charges a fee for installment agreements. Even if a request is granted, you\u2019ll be charged interest on any tax not paid by its due date. But the late payment penalty is half the usual rate (0.25% instead of 0.5%), if you file by the due date (including extensions).<\/p>\n The IRS may terminate an installment agreement if the information provided in applying is inaccurate or incomplete or the IRS believes the tax collection is in jeopardy. The IRS may also modify or terminate an installment agreement in certain cases, such as if you miss a payment or fail to pay another tax liability when it\u2019s due.<\/p>\n Avoid serious consequences<\/strong><\/p>\n Tax liabilities don\u2019t go away if left unaddressed. It\u2019s important to file a properly prepared return even if full payment can\u2019t be made. Include as large a partial payment as you can with the return and work with the IRS as soon as possible. The alternative may include escalating penalties and having liens assessed against your assets and income. Down the road, the collection process may also include seizure and sale of your property. In many cases, these nightmares can be avoided by taking advantage of options offered by the IRS.<\/p>\n \u00a9 2020<\/em><\/p>\n <\/body> While you probably don\u2019t have any problems paying your tax bills, you may wonder: What happens in the event you (or someone you know) can\u2019t pay taxes on time? Here\u2019s a look at the options. Most importantly, don\u2019t let the inability to pay your tax liability in full keep you from filing a tax return […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,6,10],"tags":[24],"class_list":["post-15020","post","type-post","status-publish","format-standard","hentry","category-articles","category-individual-tax","category-news","tag-individual-tax"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15020","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15020"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15020\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15020"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15020"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15020"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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