Income Tax: YOU OWED TAX MONEY TO IRS! WHAT CAN YOU DO? HERE'S WHAT TO DO / Financial Knowledge - Financial Literacy

You owed TAX MONEY TO IRS! Oh no!  WHAT CAN YOU DO? HERE'S WHAT TO DO!!

This scary situation may make you want to dodge the IRS, but don’t do it.

Resist the temptation to skip filing, warns. The penalty for not filing is 10 times worse than it is for paying late. And the April 15 filing deadline is fast approaching.

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Watch the video below for Stacy’s tips and then keep reading for more advice on what to do if you can’t pay the IRS a dime on time.

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Don’t fail to file

When it comes to income taxes, most people are rewarded for filing because they get money back.
As of Feb. 20, the IRS said in its latest weekly update on the 2015 filing season, 49.6 million tax returns were filed; nearly 40 million were getting refunds averaging $3,120 each.

If you owe and can’t pay, file anyway! If you file something and don’t pay, your penalty will be 0.5 percent per month on what you owe, the IRS says. But if you don’t file anything at all, it’s 5 percent per month, or 10 times more, up to 25 percent of your total tax bill.

For example, if you owe $1,000, file, but don’t pay, Uncle Sam will assess you $5 a month until you send in what you owe. But if you don’t file, the penalty will be $50 a month.

Consider your options

“There is always a cost to paying the IRS over time rather than when your taxes are due,” says Manny Davis, a Southern California accountant. Compare the cost of an IRS payment plan with alternatives.

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Charge it: You could put what you owe on a credit card, but it will cost you: Federal payment processors including pay1040.com, payUSAtax.com, and officialpayments.com charge upfront fees, plus your card issuer will charge you interest.

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IRS Form 9465 Installment Agreement Request

Buy time, sort of: If by April 15 you ask for an automatic extension of time to file your income tax return, the IRS usually gives you two extra months — for filing, not for paying.


“An extension of time to file is not an extension of time to pay,” the IRS cautions.
However, you will avoid the late-filing penalty, it says. Additionally, IRS Form 4868, which is the extension request that can be filled out online or on paper, says that a late payment penalty will not be charged if you can show reasonable cause for not paying on time.
Make a deal: The IRS may be nicer than you think.

“We recognize that some people may be enduring financial hardship,” IRS Florida . “If you need to file a tax return, pay what you can, get that return in to avoid any late payment penalties and late filing penalties, and perhaps the IRS can work out an installment agreement with you.”

The IRS says you must first file all required returns and be current with estimated tax payments. If you’re an individual owing $50,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application, or complete IRS Form 9465, Installment Agreement Request. 

There’s a setup fee: $52 for a direct debit agreement; $120 for a standard or payroll deduction agreement; $43 if your income is below a certain level.

 

Offer in compromise: You may qualify to settle your tax liability for less than the amount you owe, says the IRS. The agency considers your ability to pay, income, expenses and asset equity.

“We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time,” the IRS says.


Check your eligibility with the IRS’ prequalification tool. You may need professional help. If you go forward, the filing fee is $186; the detailed instructions and forms you need are in this IRS booklet, Form 656-B.

Don’t ignore tax bills from the IRS. If you don’t pay up, the IRS could place a federal tax lien — the government’s legal claim — against your real estate, personal property and financial assets.

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A lien secures the government’s interest in your property. Under the IRS’ Fresh Start initiative to make it easier to pay back taxes, it is generally only when you owe more than $10,000 that a lien is filed.


If you don’t pay your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

Prevent a repeat

How did you get here?
Many people who owe the IRS at tax time did not have enough money withheld from their paychecks. You may want to consider filing a new W-4, the IRS.. 

Have handy your most recent pay stubs and most recent income tax return. Enter estimates if necessary. You may have claimed too many exemptions or received W-2s from more than one job. 


Or you’re married, and both you and your spouse work. The number of your allowances changed during the year.

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Other top reasons noted by the IRS: You have non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.