Taxes 2023: Here’s what to do if you can’t pay your tax bill
Mar. 30, 2023 Yahoo! Finance
Fortunately, the Internal Revenue Service offers some repayment options to help you manage your owed debt.
“It is a common situation for taxpayers to run into, not having enough money to pay taxes that are due when they file a tax return,” Eric Bronnenkant, a CPA, certified financial planner, and head of tax at Betterment, told Yahoo Finance. “But there are multiple options that can help you repay that debt.”
Here’s what you should know.
Short-term repayment plan
One way to pay off your tax debt is by applying for a short-term repayment plan.
“This option is available for taxpayers who owe less than $100,000 dollars [in combined tax, penalties and interest],” Bronnenkant said. “There is no formal application [set up fee] and accrued penalties and interest apply until the balance is paid in full.”
Short-term repayment plans offer a repayment period of a maximum of 180 days. You can apply online, or call the IRS at 800-829-1040 and file a formal application through a Form 9465 to set up the installment agreement.
You can pay the owed amount directly from your checking or savings account through Direct Pay or by check, money order or debit/credit card. But there are fees when paying by card.
Long-term repayment plan
If you can’t pay off your owed balance in less than 180 days, you can also apply for a long-term repayment plan, Bronnenkant said. To qualify, taxpayers must have filed all required returns and owe $50,000 or less in combined tax, penalties, and interest.
This repayment plan requires a setup fee of $31 if you choose to pay through monthly automatic withdrawals or $130 if you opt for a non-direct debit repayment. According to the IRS, automatic payments are also required if your owed balance is more than $25,000 for individuals and $10,000 for businesses.
“Application fees typically apply but can be reduced for low-income taxpayers,” Bronnenkant said, adding that long-term repayment can have a maximum term of 72 months.
Just like the short-term repayment plan, you can also apply directly through the IRS website, or contact an IRS representative and apply through a Form 9465.