In a few short days, April 15th will be here and the IRS will expect you to fork over what you owe them. If you don’t have the money to make the tax goons happy, don’t’ worry about it. File your return and set up a payment plan. It’s easy to do and can save you from incurring nasty penalties at the same time.
What Is A Tax Payment Plan
This is an arrangement you come to with the IRS whereby you make monthly payments to the government rather than cough up the entire amount at one time. According to the IRS site, you can do this if you owe less than $50,000 (taxes, penalties and interest combined) and have filed all your returns. Although the IRS site doesn’t spell it out, I did some digging and learned that as long as you can pay your bill within 5 years, you have a shot at getting them to approve your installment payment plan request.
How Do You Set It Up?
As long as you meet the requirements above, you can apply online. If you owe more than $50,000 you can still apply but you’ll need to complete Form 9465 and 433-F. When you make your request, tell the IRS how much you can afford to pay each month and show them a list of your assets and income. Once you complete and submit these forms, the IRS will consider your request. They’ll usually let you know their decision within 10 days.
What Does It Cost?
If you set up the installment plan with a direct debit from your bank account to the IRS, it will cost you $52. If you don’t use direct deposit it will run you $120. If your income is below a 250% of the poverty level, the cost is $43 and if you are applying for a short term agreement, it won’t cost you a dime.
The Downside of Setting up An Installment Agreement
If you go this route the IRS might decide to place a tax lien on your property to secure the debt. Once they do that, it really dirties up your credit score. That makes it more difficult to get other credit and causes other problems as well. If they do decide to file the lien, they have to tell you first. If you don’t want the lien, you can prevent it from happening by finding another way to pay off the IRS bill.
Another downside is that you have to make these payments and pay all your subsequent tax bills on time. If you run into difficulties down the road and don’t file or pay on time, the agreement will be null and void so you’ll have to pay off what you owe immediately. Awkward.
A tax payment installment plan can be a good fix because it keeps you square with the IRS and you avoid penalties (although you still incur interest charges). The interest is probably far lower than credit card interest or most other sources available. If you find yourself between and rock and a hard place, it might be the way best way to go. Just remember to take the appropriate steps to make sure you never find yourself in this situation again. Fair enough?