No one wants to run afoul of the IRS, and one of the scariest predicaments you can find yourself in is to complete your tax return only to realize that you owe the agency money. What to do if you don't have the cash on hand? You can take comfort in knowing that the IRS is willing to work with you. It wants your money, not your immortal soul, so it offers you some options in this situation.
Your best option is to take advantage of the option that works best for you. Don't ignore the situation because the agency will eventually begin taking collection action, and that can be painful.
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If You Need Just a Little Time
You can use the IRS2go app or its Direct Pay website to schedule a payment in advance if you just need a few weeks or so to come up with the money. Both of these options will allow you to schedule a payment in advance, and the IRS indicates that you can cancel the payment through Direct Pay, too, if it turns out that the date you chose was too optimistic. But you have to do so no later than two business days before the scheduled date.
The IRS also accepts credit card payments, but the payment processor – your lender, not the IRS – will charge you a fee for this option. But this might be less than the penalties and interest the IRS will begin charging if you don't pay on time, even though you'll probably pay interest on your credit card charge, too. Direct Pay payments must come from your bank account.
The Short-Term Payment Plan
You might consider the IRS Short-Term Payment Plan if you don't think you can come up with the money within a month or so. This option gives you 180 days to pay. There's no fee, but interest and penalties will accrue. Your total tax debt must be less than $100,000 to qualify for this plan.
You can apply on the IRS website or call 800-829-1040.
Apply for an Installment Agreement
The IRS also offers a longer-term Installment Agreement payment plan if you don't think you can come up with the money within six months. This involves paying your debt in a series of monthly installments over a period of years.
This option requires paying a fee, but it's added to your balance and the IRS will waive it or at least reduce it for low-income taxpayers. It's normally $31 if you apply online or $107 if you apply by phone or mail and if you agree to the direct debit of the payments from your bank account. Otherwise, it increases to $130 or $225 respectively.
You can choose the date and amount of your payments. You have to be current with filing all your returns and you generally can't be involved in an ongoing bankruptcy proceeding. You must make payments by direct debit if you owe more than $25,000, and you won't qualify if you owe more than $50,000 unless you also submit a financial statement for approval.
You can apply online, call the IRS or submit IRS Form 9465, the Installment Agreement Request, by mail. The IRS will immediately let you know if your plan has been approved if you use the online option.
Ask for an Offer in Compromise
Asking for an offer in compromise might be your answer if there's simply no way you can come up with the money you owe, either now or in monthly installments. This option involves convincing the IRS to settle for less money than you actually owe, but be warned: Numerous requirements must be met for consideration of an OIC. You might need the help of a tax professional to negotiate for you.
You must establish that there's some doubt that you owe as much as you do, that it's doubtful that the IRS will be able to collect the tax debt from you or that collecting from you would be unfair, inequitable or create an undue hardship on you. You won't qualify for this option if you're involved in an open bankruptcy proceeding.
Temporarily Delay Collection
Finally, you can ask the IRS to temporarily stall their collection actions against you if all else fails. You must establish that you wouldn't be able to meet your basic living expenses if you pay your tax debt to the IRS. The IRS will tag your tax account as being "currently not collectible" until you get back on your financial feet.
The IRS won't just take your word for it that you can't pay your taxes and your living expenses, too. You must submit Form 433, a collection information statement, and proof of your financial situation.