Taxes are Due May 17: Here are Some Payment Options for Taxpayers Who are Low on Funds
The IRS has extended this year’s tax due date to May 17 and that day is coming up quickly. If you haven’t paid your taxes yet, and don’t have the funds, there are various options available.
Possibly the worst thing you can do is not file your taxes. If you don’t file by the due date, you will most likely be charged a 5% penalty fee. If you file an extension, your payment will still be due on May 17.
Free file may be the fastest and easiest way to file. It can be accessed on IRS.gov and it is available to taxpayers who made $72,000 or less in the 2020 tax year.
Make a Partial Payment
If you fail to make a payment by May 17, your balance will accrue interest and a late payment fee. Your interest and fees will be lower if your make a partial payment.
If you are struggling to pay your tax bill, you may consider taking out a loan. Loans typically offer interest rates that are lower than the ones that will accrue on your tax bill. The IRS charges interest rates of .5% monthly and the rate is adjusted quarterly at 3% per year, compounded daily.
Payment Plan Options
Taxpayers may also set up payments plans if they can’t pay off their taxes in one lump sum. It only takes a few minutes to apply for a payment plan, and the IRS will notify you immediately to let you know if your application has been approved. Online payment plans are typically processed more quickly than requests submitted with electronically filed returns.
Payment plan options are as follows:
Short Term: Short term payments plans are available for taxpayers that owe $100,000 or less in taxes, interest and penalties. They typically require balances to be paid off within 120 days.
180-day plans are also available, but taxpayers can only apply by calling or writing the IRS. Although there is no fee to set up a short-term payment plan, penalties and fees will still apply.
Long Term: Long term plans are available for taxpayers that owe up to $50,000 in taxes, interest and penalties. Payments are made monthly, and a set-up fee applies. However, low-income taxpayers may qualify to have fees waived or reimbursed.
If long-term plan taxpayers filed their return on time, their penalty fee may be cut in half. That means the penalty will accrue at .25% instead of the usual .50%.
If the IRS determines that a taxpayer is unable to pay their taxes, they may delay collection until the individual’s financial situation improves. However, interest and penalties will still accrue. Delays can be requested by calling 800-829-1040.
In some cases, taxpayers may have their penalty and interest fees waived. This will be more likely if the individual can provide reasonable cause as to why they were unable to pay their taxes.
If a taxpayer paid their taxes in the past three years, but were unable to pay in the current year, the IRS may provide relief under their First Time Abatement Program. See the penalty relief link for more information.
Offer in Compromise
An offer in compromise allows taxpayers to settle their bills for less than the full amount due. There is typically a $205 nonrefundable fee for individuals who wish to go this route. The fee may be waived for lower income taxpayers. Check out the Offer in Compromise Free Qualifier Tool to find out if you’re eligible.
Taxpayers are reminded that they can securely view their account at IRS.gov/account to look up their payment history and find out about any overdue balances.