If You Can’t Afford an Unexpected Tax Bill, Try Paying in Installments.
One of the worst things about paying taxes is that you often don’t know what your tax bill will be like until the deadline.
In a few years, you will find out that you have paid more than enough taxes thanks to withholdings and estimated tax payments. You receive a tax refund. Great!
Years later, you find that you haven’t withheld enough money from your paycheck – which means you have to pay your tax bill on April 15th. This is not so good, especially if you don’t have enough money in your bank account to cover the tax. cargo.
Many Americans are faced with an unexpected tax bill this year thanks to the Tax Cuts and Employment Act. As reported by The Washington Post :
The millions of Americans filing their 2018 taxes are likely to be surprised to learn that their refunds will be less than expected, or that they owe money to the tax office after years of receiving refunds.
This is not necessarily because the new tax laws have raised our taxes. While some people ended up paying more taxes in 2018 thanks to various deduction changes, more people unexpectedly got their tax bill thanks to the withholding table changes.
In other words: since less taxes were withheld from their salaries during the year, they owed more taxes on April 15th.
“There is a difference between taxes and refunds,” said Joseph Rosenberg, senior fellow at the Urban Brookings Center for Tax Policy at the Urban Institute. “In the past year, people usually received a portion of the tax cut gradually in the form of lower deductions from their wages.”
Getting an extra $ 20 in paycheck every few weeks is fine, but if that money is already well spent by the time you realize you owe the IRS extra cash, what should you do?
Well, the IRS happily accepts installment payments, and MarketWatch has an excellent summary of the process :
[…] you can usually negotiate a loan from the IRS by requesting permission to make installment payments on your tax account. Do this by completing Form 9465 (Request for Installments) along with your 2018 return – either April 15th or October 15th if you extend the deadline.
Form 9465 is pretty straightforward. (Indeed.) You offer your own terms. For example, if you owe $ 4,000, you might be offering to pay $ 200 on the first of every month. Approval usually happens automatically if you owe $ 10,000 or less (not including interest and penalties) and offer a repayment period of no more than 36 months. You should receive a formal response within 30 days of filing Form 9465, but sometimes it takes a little longer. (It’s the government, after all.) Once approved, you will be charged a $ 31 “user fee” if you apply online and agree to have your bank account automatically debited.
Yes, you will be charged interest on any tax due, but it will be only 0.25% per month – probably less than you would pay if you used a credit card or took out a personal loan to cover your tax burden.
After you and the IRS enter into an installment plan agreement, you should be aware of future taxes. That is, you cannot pay your 2018 taxes in installments and then claim your 2019 taxes in installments. Do what you need to do, whether it’s working with your HR department to update your retentions, or setting aside extra cash for estimated freelance taxes to make sure you can pay your 2019 tax bill in full.
Have you ever used an installment plan to pay taxes? Planning to take it this year? If so, let us know how it worked for you and if you would recommend other taxpayers to follow this advice.