Chances are if you ended up here, one of two things happened: You’re filing your taxes and realize there’s no way you can afford the amount due, or you got the dreaded tax notice in your mailbox today. (This is why people hate getting mail!) This is probably a topic that generates its fair share of cringe-y looks, but starts with two simple questions:
How do I respond to this tax notice I just got in the mail?
What do I do if I owe taxes and can’t pay what I owe?
Simple enough questions, but unfortunately the answers are much more long-winded. We know it doesn’t feel great when you file your taxes, then find out you owe Uncle Sam, too! It’s even worse when you file your taxes and get a letter months later! On the more fortunate side, there are many options if you don’t think you can afford the tax liability you owe – some of which may even lower your tax liability if proposed correctly.
Help! What Are My Options?
There are four options if you received a tax notice, or if you owe tax and don’t think you can pay it:
- Extension of time to pay
- Installment agreement
- Offer in Compromise (OIC)
- Temporarily delay the collections process
Let’s cover each of these in more detail…
Request an Extension of Time to Pay
If you don’t have the ability to pay your tax bill because of some factors that are more on the temporary side – fear not! You can request an extension of time to pay that may extend you up to 120 more days to make your payment, if granted. However, there is one pro and one con to this extension request:
- Pro: There are no additional fees to file the extension request.
- Con: The extension does not waive interest and penalties, so these will still be applied to the full taxes you owe until you actually pay them.
Even if you take into account the interest and penalties, this method still generally saves you more money than filing an installment agreement.
This extension method is also fairly simple – you can request this by calling the IRS directly at 800-829-1040.
Additionally, you may also qualify for an extension through utilizing IRS Form 1127 – an Application for Extension of Time for Payment of Tax Due to Undue Hardship. If life circumstances have drained your bank account recently, try this method first.
Something to remember – in order to file either type of extension, you must have filed your income tax return by the tax deadline, which was April 15th. The payment extension will not apply if your tax return is not filed or if it was filed late.
Request an Installment Agreement
An installment agreement is the most common way to handle a tax bill you can’t immediately pay. You can request consideration by filling out and mailing IRS Form 9465, Installment Agreement Request. You may even be able to complete this process online through www.irs.gov.
We recommend having Boundless handle this for you! We are Enrolled Agents with unlimited rights of practice before the IRS, and can help you set up your installment agreement today.
Didn’t file your return yet?
Submit IRS Form 9465 with your tax return when filed. (Keep in mind, your tax return is late at this point and your installment agreement will likely be rejected if there are not extenuating circumstances at play.)
Filed your return but didn’t pay yet?
If the IRS hasn’t issued you a bill yet (balance due notice), you can request a pre-assessment installment agreement on your current tax liabilities. Call the IRS directly at 800-829-1040 in this situation.
If the IRS has already issued you a tax bill, you may request an installment agreement by using the online payment agreement application on www.irs.gov, or call the IRS at 800-829-1040.
You can also call Boundless at (610) 628-9152 and have us help you instead! Our Enrolled Agents are experts at setting up installment agreements with the IRS and would be happy to help!
The IRS typically responds to installment agreement requests within 30 days of the submission of your application or phone call. They offer several convenient ways to make your installment payments, including:
- Direct debit from your bank account
- Payroll deduction handled with help from your employer
- Check/money order
- Online or phone payment via the Electronic Federal Tax Payment System (EFTPS)
Installment agreements, however, are not free of charge. The IRS currently charges $225 to initiate a standard installment agreement with payment via check, money order, EFTPS, or payroll deduction. If you agree to direct debit from your bank account, this fee drops all the way to $31. (We recommend direct debit!)
After the installment agreement is set up, you must make your payments and stay current with all tax liability and tax filings! This sounds like such a simple concept but is where a lot of our clients make a huge mistake! Payments that are manually sent in to the IRS must be mailed at least 10 days in advance to ensure they aren’t late. If you’re late or don’t file on time in the future – the IRS will drop your installment agreement. This is not a good situation to be in, trust us.
Offers in Compromise (OIC)
In an Offer in Compromise (OIC), you work out an agreement with the IRS in which you will pay a reduced amount of the taxes you owe. What we’re saying here is if you qualify for an OIC, you may not actually owe your entire bill!
In order to be considered for an OIC, all filing and payment requirements must be current. Lots of knowledge of various tax laws, allowances, and codes are necessary to make an accurate, acceptable OIC – so if you’d like to go this route, please consult with a tax settlement professional. These are very difficult to submit on your own, and even more unlikely to be accepted by the IRS.
To file an OIC with the IRS, there is a $186 application fee, unless you meet the Low-Income Certification Guidelines published by the IRS. It is also worth noting that if you are in bankruptcy proceedings, you are ineligible for an OIC.
Like we said above, OICs are difficult to prepare and even more difficult to get accepted by the IRS. Boundless has expert Enrolled Agents on staff who have knowledge of the latest tax allowances and regulations and will work with you to prepare an accurate OIC at a reasonable cost. Contact us now.
Temporarily Delay the Collections Process
So far we’ve talked about alternatives for tax payment if you are experiencing a short-term hardship. What if you are in a more long-term hardship that will likely continue for the foreseeable future? This last option is for you.
If you cannot pay any of your tax debt, then you can attempt to get your account classified by the IRS as “currently not collectible.” In this circumstance, the IRS temporarily delays collection until your financial situation improves.
Notice we underlined temporarily and currently above – this is because being currently not collectible doesn’t mean the IRS will stop chasing your debt forever – it only means they will put off collection proceedings for a little while. Prior to approving your request to delay collection, the IRS will likely have you complete a Collection Information Statement (Form 433-A, 433-B, or 433-F) to provide proof of your financial status. These forms include information regarding your assets, monthly income, and allowable expenses.
Whichever method you may choose, get the process started sooner rather than later. Don’t hesitate to reach out to the IRS to inform them about your situation.
If the thought of dealing with the IRS without a professional on your side is scary, you’re not alone! Let Boundless help. Our team of expert Enrolled Agents know how to properly submit offers to the IRS and get them accepted.