En español | If you can’t pay all the tax money you owe the federal government this year, the Internal Revenue Service has some options for paying over time. Most important, however, is that you file your return by the April 15 deadline.
The new tax law has led to an increase in Americans owing money as well as receiving lower-than-expected refunds.
If you know you owe money and are unable to pay in full, you can set up a payment plan even before you file your tax return. Here are some payment options.
1. Online payment agreement If as an individual taxpayer, you owe $50,000 or less in combined income tax, penalties and interest, or you are a business owner who owes $25,000 or less in payroll tax and have filed all your returns, you may qualify for an online payment agreement. You can set up this agreement to pay in under 120 days with no fee. If you need more time, you can take up to six years, but you will have to pay a $31 fee to set up the plan and must pay by automatic withdrawal. The interest rate is adjusted every calendar quarter and is based on market conditions.
If you don't have a payment plan, the late-payment penalty is .005 percent per month; if you do, you'll pay half that (.0025 percent), according to an IRS spokesperson.
Last month the IRS decided to waive penalties for those who underpaid taxes during 2018 if they've paid at least 80 percent of what they owe for that year. In the past you could avoid the penalty if you paid 90 percent of what you owed for the year.
“The IRS understands there were many changes that affected people last year, and the new penalty waiver will help taxpayers who inadvertently had too little tax withheld,” IRS Commissioner Chuck Rettig said.
Most taxpayers qualify for the online-payment-agreement option, according to the agency. To use this, first set up an IRS account (if you don’t already have one); then fill out the online application. The IRS will let you know immediately if you qualify. An online payment agreement includes interest and penalties until the amount you owe is paid in full.
2. Installment agreement An installment agreement is any payment plan, such as a paper agreement that the IRS mails to your home address or Form 9465 downloaded from IRS.gov. The online agreement may be set up online only, whereas other installment agreements can arranged over the phone, by mail or in person at an IRS office. The setup fee is typically higher if you don’t apply online and don’t agree to automatic withdrawal.
3. Delaying collection If the IRS determines you are unable to pay, it may delay collection until your situation improves. Before approving a request to delay collection, the agency may ask you to complete a Collection Information Statement (Form 433-F, Form 433-A or Form 433-B) and submit proof of your financial status that may include details about your assets and your monthly income and expenses. The longer you wait to pay, the higher your penalties and interest. The agency will review your ability to pay during the temporary delay and may also file a Notice of Federal Tax Lien against your property, including real estate, personal property and financial assets. A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt, according to the IRS.
4. Offer in compromise If you are in financial hardship, you may be able to settle your tax bill for less than you owe. For help in determining your eligibility, consult irs.treasury.gov.
If you have what the IRS calls unplanned events or special circumstances (such as serious illness or being a disaster victim) and that might impair your ability to provide for yourself and your family, this option is a possibility, an IRS spokesperson said.
Unexpected tax bills for 2018 may mean you should check your withholding for the 2019 tax year.
You can do this online if you believe you might be at risk for having too little tax withheld from your paychecks. If you itemized in the past but now take the increased standard deduction or have a complicated tax return, recalculate your withholding or consult with your tax preparer.
“We encourage people to check their withholding again this year to make sure they have the right amount of tax withheld for 2019,” Rettig said.