What to Do If You Owe Tax This Year
So you followed our advice and filed your tax return early in the year, only to find that lo and behold, you really owe money to the government (tax refunds were eight percent lower than last time for those who filed tax returns during the first week of tax season. ). If this tax bill exceeds the amount you can afford to pay at the time of filing your tax return, you have several different repayment options.
The first option is to use the next ~ two months before the tax deadline to get the money you owe together. CNBC reports:
If you are in arrears but haven’t filed your tax return, you could face an IRS tax failure penalty that can cost 5 percent of your unpaid tax bill every month it goes unpaid for up to five months.
If you apply but don’t pay, you may face a smaller penalty of 0.5 percent of your debt each month until you pay in full, which can be up to a maximum of 25 percent of your debt.
If you still can’t get the amount you owe together by April 15th (even if you’re applying for an extension ) and you owe less than $ 100,000 (I’m guessing that’s most of us, huh? Hopefully?), Then you set up a payment plan with the IRS :
- Long Term Payment Plan (Hire Purchase Agreement): You owe $ 50,000 or less in cumulative taxes, penalties, and interest and filed all required returns.
- Short Term Payment Plan: You have less than $ 100,000 in taxes, fines and interest owed.
Different fees apply to different payment plans:
The US tax system is a distribution , which means you pay taxes as income (rather than all at once, at the end of the year). If you did not pay taxes as money earned, you will be punished . But the IRS is waiving most of the fines this year due to tax changes ( more on that here ). However, you will be on the hook for interest if your balance is not paid by April 15th. Interest accumulates daily, so even if you cannot pay the full amount by then, you must pay back as much as you can.
The easiest way to apply for a payment plan is online , but you can also apply by phone, mail, or in person at the IRS office. There is another option, the Compromise Offer , which you can qualify for if paying your tax bill puts you in dire financial straits ( although this is rare ).
And make sure you change your 2019 deductions so you don’t have to bill another invoice next year.