For 2021, the U.S. Internal Revenue Service gave us all a little “gift” by extending the deadline to file and pay taxes from April 15th to May 17th, 2021. But in this time of financial upheaval for many Americans, if you owe the IRS and can’t pay on April 15th, you may not be able to pay on May 17th either. So, what are your options, and what consequences will you face?
If you can’t pay now, your best option is to file your taxes and pay as much as you can now. If you don’t file, you could also face a failure-to-file fee on top of any interest or late payment fees. You do have a few options for the amounts you still owe, including monthly payment plans, an offer in compromise, or suspension of collection if you qualify.
Payment Plans
The IRS offers short-term payment plans of up to 180 days with no service fee. A 0.5% monthly penalty, plus interest, will accrue until you pay off the balance. For the first quarter of 2021, the IRS set the interest rate at 3% for individual taxpayers. If you owe less than $100,000 and can pay off your balance within 180 days, you can apply online. For longer payment terms, you’ll need to apply for a payment plan with the IRS. The maximum repayment term is 72 months.
You’re guaranteed a payment plan if you owe less than $10,000 and you and your spouse:
- Have filed returns on time for the last five years,
- You agree to pay in full within three years,
- You can’t afford to pay in full right now, and
- You aren’t in bankruptcy proceedings.
For higher balances, the IRS may require you to set up automatic payments or debits.
Offer in Compromise
An offer in compromise is an agreement between the IRS and the taxpayer to settle your tax debt for less than the full amount due. To qualify, you must:
- Have filed all tax returns,
- Made all required estimated tax payments for the current years, and
- Be current on all tax deposits for a business with employees.
Temporary Suspension of Collection
In some cases, if the IRS determines that you can’t pay your taxes, they will temporarily suspend all collection efforts. This suspension doesn’t make your debt go away; it just suspends collection efforts while you can’t afford to pay. The IRS will require you to prove your financial status, including your income, assets, and expenses.
Whatever you do, you should never ignore a tax bill from the IRS. You’ll face penalties, interest, and you could end up with a federal tax lien or levy on your assets. If you’re struggling with tax payments, it’s important to seek help from a trusted tax expert. Contact Highland Tax Group to get started.