Concerned that when you file your taxes you won’t be able to pay? Keep reading for tips on how to find a system that works for you. Whether you think you can afford to pay your taxes or not, you HAVE to file. If you don’t file your taxes, you’ll owe the government more money in non-filing penalties per Internal Revenue Code 6651. In addition to the non-filing penalties, you must pay a late fee. This fee includes 5% of the total tax that was not paid when due and 0.5% of the unpaid tax up to but not exceeding 25%. Oh, plus interest! That’s a mouthful but let’s just round up and say a minimum of 6% for not filing and not paying on time.
What’s Your Best Option?
The best option is to file your taxes on time — either on or before the April 15th deadline or in October if you filed a timely extension on April 15th. Pay what you can or file an installment payment agreement with your return using an IRS Form 9465 or by joining online at IRS.GOV for an Online Payment Agreement.
Installments Are an Option
There are options for paying in installments ranging from 6 months to 72 months. For the 6-month option, the amount due must be less than $100,000. If you owe between $25,000 to $50,000, the IRS REQUIRES that the taxes be debited from your bank or credit union. With an online agreement, you can schedule all of your payments up to 365 days in advance so that you never miss a payment. When a payment is late or missed, the agreement becomes null and void — then collection issues can arise, giving you more headaches as the IRS contracts private collection agencies to assist with getting taxpayer money.
Pre-Planning for Next Year
To avoid having a large tax bill every year, you can adjust your withholding from your wages, Social Security benefits, or your pension/IRA. How do you know how much to increase your withholding? The IRS has a withholding calculator for you that is a great tool. Just remember you may have to make sure your spouse is not going to claim the same number of children (no longer a number but dependents under 17 are $2000 credit each). If you work two jobs you include that money as well. In conjunction with additional withholding, you may also make estimated tax payments four times a year to make it more manageable.
Let’s Break it Down:
- File even if you cannot pay.
- Pay something when you file or as you can to lower the late payment penalties and interest.
- Make an installment agreement to break up the payments and avoid the potential of having your wages or bank account garnished for unpaid taxes.
- Adjust your withholding so this doesn’t happen again.