TAX TIP No. 71
Tax bill too big? IRS offers payment options
If this year's tax
filing deadline will be a "pay" day for you and you
don't have the cash, the Internal Revenue Service gives
you several payment options.
|In this tax tip:
||Paying with plastic
||Let's make a deal
if you can't pay your tax
bill, go ahead and file your
return on time. This way, you'll
avoid the IRS' failure-to-file
penalty of 5 percent per month
(up to a maximum of 25 percent)
of your balance due. You'll
still face that
penalty each month your bill
is outstanding, but it's only
0.5 percent of the amount
Now take a look at what you
Some taxpayers find the easiest way to pay, either part of what they owe or their full tax bill, is with a credit card. The IRS has awarded contracts to two companies to accept payment by plastic: Official Payments and Link2Gov. Both accept payments from electronic as well as paper filers, either via phone or the Internet. They take American Express, Discover, MasterCard or VISA.
|Credit card tax payment processors
Remember: While this
may get you off the hook with Uncle Sam, it will cost
you in other ways. Each company has its own fee schedule
(generally 2.49 percent of your tax bill or a minimum
of $1) connected with charged payments.
If you pay a fee, make a note of it for next year's filing. The IRS has ruled that this amount will now be deductible as a miscellaneous itemized expense.
Keep in mind that if you don't pay off your credit
card in full, you'll start racking up interest charges
on your account. In some cases, though, your credit
card interest charges might fall below IRS penalties
and interest you'd owe if you don't pay on time.
before you decide to pay with plastic, run the numbers
so that you don't pay anyone -- neither Uncle Sam nor
your credit card company -- more than necessary.
If your tax bill is too large
for a credit card, the IRS will take monthly
payments. You even get to pick your monthly payment
amount and the day it will be due.
In fact, if you've previously filed
(and paid) taxes on time, your tax bill is less than
$10,000 and you convince the IRS that you can't come
up with that much all at once, the agency can't turn
down your request. Your installment plan, however, must
pay off the due tax in at least three years. To get
the program going, attach Form
9465, Installment Agreement Request, to the front
of your tax return.
strapped taxpayers also can use an installment
plan to make partial payments
of tax liability. The IRS
previously had allowed partial
installment payments but stopped
the practice in 1998 when
an IRS attorney raised questions
about the IRS' authority to
accept such payments without
statutory authority. Congress
officially granted the IRS
the power to resume partial
payment installment agreements
as part of the American Jobs
Creation Act of 2004.
Updated: April 15, 2009