Options for Paying Taxes
Pay Late: If payment can be made within a few months of filing, pay as much as possible with return or extension. Mail balance on receipt of the IRS notice of tax due. Cost: Interest at federal rate plus late payment penalty of 0.5% monthly.
Pay by Credit Card: Cost: Percentage of tax as a convenience fee plus interest at the credit card rate.
Installment Agreement: The IRS will generally accept installment agreements from taxpayers if the unpaid liability is $50,000 or less and the tax will be paid within six years. If the balance due is $10,000 or less, it will be paid within three years and a few other conditions are met, the taxpayer is guaranteed an installment agreement. A taxpayer who can pay the full amount owed within 120 days does not need an installment agreement; instead a payment agreement can be set up online or by calling the IRS. Taxpayers can call the IRS at 1.800.829.1040 to set up installment payments or file Form 9465, Installment Agreement Request.
A $225 user fee ($31 for taxpayers who file online and pay their tax with a direct debit from their bank account) is charged for an installment agreement. However, qualifying low-and middle-income taxpayers (based on family size and state of residence) pay a reduced fee of $43. The reduced fee is calculated automatically by the IRS. If the taxpayer receives an installment agreement acceptance notice at the higher fee, Form 13844, Application for Reduced User Fee, can be filed to request an IRS evaluation of the fee. Late payment penalties and interest will be charged on the unpaid balance. While an installment agreement is in effect, the late payment penalty is 0.25% per month. If the taxpayer's return was not timely filed, the penalty is 0.5% monthly. Interest is charged at the federal interest rate, compounded daily.
NOTE: Members of the armed services may be able to defer paying tax that becomes due before or during military service if their ability to pay is materially affected by military service.
Extension of Time to Pay: A taxpayer can request a six-month extension by filing Form 1127, Application of Extension of Time for Payment of Tax. The taxpayer must show that he/she cannot sell assets or borrow to pay the tax except under terms that would cause severe loss and undue hardship. Statements of assets, liabilities and receipts and disbursements for three months preceding the due date of the tax are required. Form 1127 must be filed by the due date for payment. An approved extension eliminates the late payment penalty but has no effect on interest charges.
File the return on time or file for an extension to avoid late filing penalty of 5% per month up to 25%.