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Individual Tax Payment Options for the IRS

Updated: May 13





We love our clients at Practical Accounting Solutions, and we are dedicated to helping you find practical solutions to all of your tax problems. In the midst of our current situation, you may find yourself strapped for cash and struggling to pay your taxes. We are here and happy to help you find solutions! We are offering contact-free appointments as well as extending our Customer Appreciation discounts until the new tax deadline, Juy 15th. While you wait for your appointment date, check out these options to pay your taxes. This week, we talk about individual payments. Next week, we’ll cover business payment solutions!


The Basics


July 15th is the new tax deadline, so that gives you some extra time to build your strategy. Be sure to note that if you pay past this deadline, your balance will have interest plus a monthly late payment penalty. Even if you cannot pay, file your return to avoid a failure to file fee, and take the time to consider your payment options. Also note that while you do not need to do anything to qualify for the July 15 extension, interest and penalties will begin starting on July 16.


If you are unable to pay your balance due to the coronavirus, the IRS has a frequently updated website with additional guidance. This payment relief is for individual returns, trusts, and corporations. This relief only applies to federal income returns and tax payments, not state tax payments, deposits, or payments of any other kind of federal tax. In Virginia, the Department of Taxation can help you!


If you still need additional time, you can fill our Form 4868.


Ways to Pay

Online Options

The IRS has this Payment Page dashboard where you can explore information regarding your balance, pay your balance, and view your account information. You can also pay through the Electronic Federal Tax Payment System, but this is typically recommended for larger payments or businesses and requires an enrollment process. In addition, there’s also an Electronic Funds Withdrawal for e-filing.


Other Ways to Pay


Same-Day Wire


Check or Money Order


Cash at a Retail Partner (Note: given the current circumstances, you may want to check if this is an option due to closures)


Installment Options


Payment Plan

With a payment plan, you can apply and pay directly online. There are a few additional ways you can pay:


Full Payment

This means you’re paying your full balance now with no setup fee or future penalties or interest.


Short-Term Payment Plan

This is an option if you plan to pay your entire balance in 120 days or less. There’s no setup fee for this option, but you’ll be responsible for accrued penalties and interest until the remainder of your balance is paid in full. If you want to qualify for this option, you must owe less than $100,000 in combined tax, penalties, and interest.


Installation Agreement (Long-Term Payment Plan)

This is an option if you want to pay off your tax debt in more than 120 days. There are a few options you can opt for with an installation agreement. For this option, you must owe $50,000 or less in combined tax, penalties, and interest. In addition, you must have filed all your required tax returns.


Types of Installation Agreements:

  1. Automatic Withdrawals require a $31 setup fee, but you may qualify to get it waived depending on your situation (see more here).

  2. Pay Each Month (Non-Direct Debit) requires a $149 setup fee and accrued penalties and interest until the balance is paid in full. There are additional low-income resources where if you qualify, this fee might only be $43 and possibly reimbursed.


Offer in Compromise


This option is typically one of the last options to consider, as it is the most intensive. Offer in compromise allows you to settle your tax debt for less than the full amount you owe. It is typically granted to individuals who cannot pay their balance or if paying their balance would create a financial hardship.


Factors Considered with Offers in Compromise

  • Ability to Pay

  • Income

  • Expenses

  • Asset Quality


Eligibility


To be eligible for an offer in compromise, you must first file all of your required tax returns and have not yet made any required estimated payments. Know that your initial payments with your application will reduce your balance should the application become returned. In addition, you are automatically uneligible if you are in an open bankruptcy proceeding.


Payment Options:


1. Lump Sum Cash

With this method, you’ll pay an initial payment of 20% of your total offer amount. If it is accepted, you will receive written confirmation, and then any remaining balance will be due in five or fewer payments.


2. Periodic Method

With the periodic method, you’ll submit an initial payment with your application, then continue to pay the remaining balance in monthly installments while the IRS considers your offer. If they accept your offer, then you’ll continue to pay monthly until your balance is paid in full.



The Process

  1. Any non-refundable payments and fees you submit with your application will apply to your balance.

  2. A Notice to Federal Tax Lien may be filed. This alerts your creditors that the IRS is assessing secured claims against your assets, and may be included in your credit report.

  3. Your other collection activities will be suspended.

  4. Your legal assessment and collection period extended.

  5. You will make all the required payments associated with your offer.

  6. You don’t have to make payments on any existing installments agreements.

  7. Your offer is accepted or rejected

If Accepted, but sure you’re filing all required tax returns and making the appropriate payments. Any funds due within that calendar year will be applied to your balance. Once your offer terms are satisfied, your federal tax lien will be released. If you have questions at any time during your payment process, you can request a copy of your public inspection file through official channels.


If rejected, you’ll have 30 days to appeal your request using the Request to Appeal in Offer in Compromise form - Form 13711 The IRS Independent Office of Appeals also has additional resources to help you.


If the IRS does not accept or reject your offer in compromise within two years of the IRS receipt date, your offer will be automatically accepted


Request to Temporarily Delay Collection


This is typically your very last resort, and it means that the IRS has labeled your account as “not collectible” and they will delay collection until your financial situation improves. You’ll likely be asked to complete a Collection Information Statement and provide proof of your financial status. Any debt you owe will include penalties and interest until the full balance has been paid. A Notice of Federal Tax Lien may also be filed. If you opt for this option, contact your accountant to explore ways to pay back your debt and organize your finances. As previously mentioned, this is typically a last resort, and your accountant ideally might be able to help you before this becomes your only option!



Conclusion


There are so many different options to pay your tax balance if you find yourself struggling during this challenging time. Practical Accounting Solutions is here and ready to help. To make an appointment, email our CPA Joe at Joe@PracticalAccountingVA.com or call him directly at (703) 309-5754.



More Resources:

https://www.irs.gov/taxtopics/tc202

https://www.irs.gov/payments

https://www.irs.gov/businesses/small-businesses-self-employed/whats-the-difference-between-a-levy-and-a-lien





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Disclaimer: The views presented in this post are meant as educational resources and should not be taken as direct advice for your personal finances or small business. Should you have questions regarding a post relating to your specific finances, please contact us at info@practicalaccountingva.com.


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