If you owe money to the Internal Revenue Service (IRS), it’s in your best interest to start making payments immediately and eliminate this debt. The IRS charges significant fines to people who do not pay what they owe. Interest, along with failure-to-pay penalties, could cost up to 47.5% of the tax that you owe. If you file your taxes more than 60 days late, you could be charged a $485 fee or 100% of your tax bill. The IRS will bill whatever amount is less.
Not everyone has extra money saved that they can use to pay off their taxes. Fortunately, there are multiple ways to get this task done. Use this guide to learn about tax payment strategies, lending options, and how to file for an extension.
Tax Payment Options: How To Pay Your Taxes
There are multiple ways to pay your taxes depending on your financial preferences. You can work with an accountant to send funds to the IRS or submit payments on your own. Here are a few options to choose from:
- Mail-in check: If you need to print out tax forms, you can include payment to the IRS in the form of a paper check. You may want to track your letter to ensure the mail is delivered safely.
- Electronic payment: The IRS offers multiple direct payment options through the Electronic Federal Tax Payment System (EFTPS). This pulls funds from your bank account with an e-check.
- Credit or debit card: Trusted third-party vendors allow you to put your IRS tax payment on a credit card. While this is convenient, these vendors charge significant fees.
- PayPal: The same third-party vendors that accept credit cards will also allow you to pay your taxes via PayPal.
The most affordable way to pay your taxes is through a mail-in check or electronic check. This way you aren’t paying additional fees on top of your tax bill.
IRS Payment Plans
If you cannot pay your tax bill in full, the IRS offers multiple payment plans to reduce your debt. You can enroll in a short-term payment plan that gives you an extra 180 days to pay your bill or you can sign up for a long-term payment plan if you need it.
The IRS has both active payment plans where you submit funds to the department or automatic payroll deduction systems that collect money from your paycheck. Your employer will also have to agree to the latter option so they know a portion of your paycheck is being used to pay back your taxes.
If you have an overwhelmingly high tax bill, you might be able to work with the IRS to reach an Offer in Compromise (OIC). This resolves your tax liability if you agree to pay a reduced amount.
How To Set up an Installment Plan with the IRS
If you need to set up a payment plan, you can take the following steps:
- Visit the payment plan page on the IRS website to confirm that you qualify.
- Fill out Form 9465 to request approval for the payment plan.
- If your application is approved, start making monthly payments on your taxes.
- Make payments manually or through automatic payroll deduction until you no longer owe any money.
Depending on how much you owe and your monthly payment, your payment plan could last a few months or a few years.
Tax Payment Strategies
There are multiple ways to get money for your taxes. Here are a few ways to secure the funding you need so you can pay the IRS and avoid significant penalties.
- Get a side hustle: Look for a second job or other earning opportunity. Remember that you will have to pay income taxes on the money you make from your side hustle.
- Ask for extra work hours: If possible, work overtime to increase your paycheck so you can pay the IRS
- Take out a short-term loan: Work with a lender to borrow money. develop a payment plan to return the funds.
- Take out a stock loan: A stock loan allows you to borrow against the publicly traded shares you own. These are secured loans that use your shares as collateral. This is a form of securities lending that could allow you to get a fair interest rate. Use a stock loan calculator to estimate how much you could borrow.
- Cut back on other expenses: Look for ways to save money for a few months to free up income to pay your debt.
You can combine multiple efforts, like cutting back on expenses while working extra hours to increase your income. The short-term work will help you stay out of debt in the long run.
When Do You Have To Pay Your Taxes?
Americans are required to file their taxes for the previous calendar year by April 15th of the current year. If April 15th falls on a weekend, the tax deadline is the next business day. You can start preparing your taxes as early as January 1st of the new year and do not have to wait until the April deadline to submit your forms to the IRS. If you owe money to the IRS, you will also want to pay it before this April 15th deadline.
Some people, like self-employed workers and independent contractors, also have to pay estimated taxes. This is because taxes aren’t automatically pulled from their paychecks due to the nature of contract work. If you pay estimated taxes, check the IRS website to learn when the quarterly estimated tax deadlines each year.
What Happens if You Don’t Pay Your Taxes?
There are several reasons to prioritize paying your taxes on time. As soon as you miss your payment deadline, the IRS starts charging interest on the debt and late payment penalties. The longer you wait, the higher your tax bill will be.
If you continue to be delinquent on your taxes and are not working with the IRS to develop a payment plan, the department can send the debt to collections, which will harm your credit. The IRS can put tax liens on your accounts and potentially seize your assets.
If you continue to skip out on your taxes and won’t work with the IRS, you could go to prison for tax evasion.
How To File for an Extension
The IRS is willing to work with people who want to pay their taxes but are currently unable to. If you need extra time, consider filing for an extension, which will give you until October 15th to file your taxes and pay what you owe. Here’s what you need to do.
- Visit the IRS website and complete an extension request.
- Explain why you need an extension, whether an employer failed to provide a W-2 form or you need additional time due to hardship.
- Take steps during the extension period to gather your tax documents.
- File your taxes when you can. You do not need to wait until October 15th to submit them.
Plenty of experts are available to help you understand the complicated paperwork that comes with filing taxes. Working with a tax professional can help you submit the right documentation and pay what you owe. Staying on top of your taxes can prevent hefty penalties and keep you out of debt.
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