How to Choose a Payment Plan If You Owe the IRS
You may have forgotten that your unemployment benefits were taxed or that you had stocks that paid taxable dividends tucked away somewhere in your portfolio – the tax bill may surprise you anyway, and sometimes even when you least. you can afford it. If you are unable to pay your tax bill on May 17th, consider the following IRS payment plans to avoid IRS worst penalties.
What repayment options does the IRS have?
The IRS (and most government tax authorities) offer payment plans directly through their websites or as an option when filing tax returns electronically. Fortunately, there are several options for paying in installments, depending on how quickly you can pay off the balance, as well as the total amount owed.
However, there is a caveat: with repayment plans, you will still be affected by setup fees and current interest, although the interest rate you pay will drop from 0.5% to 0.25% per month (for more information on IRS penalties, click here ). Plus, a repayment plan can help you avoid withholding wages or IRS claims on your property . Otherwise, the only way to avoid additional charges is to pay your tax bill on time. Here’s a look at the plans :
- Short-term payment plan: The payment period is 180 days or less (recently increased from 120 days) and the total amount owed is less than $ 100,000 in cumulative taxes, penalties, and interest. There is no setup fee for this plan and interest is charged until the balance is paid in full. The penalty for non-payment is a maximum of 25% of the unpaid tax amount until the balance is paid in full.
- Long-term payment plan: If the payment period exceeds 120 days , it can be repaid in monthly installments over six years, provided the amount owed is less than $ 50,000 in cumulative taxes, penalties and interest (again, the maximum penalty for non-payment is 25% until the balance is paid in full). You can set up either monthly automatic withdrawals directly from your checking account (setup fee is $ 31 ), or use non-automatic mode (setup fee is $ 149 per setup or $ 43 if you are a low income ).
To register, click on the blue button that says “Apply / Revise as Individual” here .
Can you use a 0% credit card to pay taxes?
You can pay your tax bill with a credit card that has a 0% pre- rate for the first 12-18 months, although this is a risky move. In this case, you are simply transferring the low-interest debt to a credit card that will likely be in the 10-25% interest rate after the introductory offer expires. In other words, you are only buying yourself extra time, so you must be 100% sure that you can debit this balance from your credit card when the balance is due. Otherwise, you just risk even more debt later on.
This post was written on May 11, 2021 and updated on May 12, 2021 to adjust the payment period for the short-term payment plan, which is 180 days, not 120 as originally written.