If the Customer Can’t Pay The Tax – Part I
If the Customer Can’t Pay The Tax – Part I
There are several different payment programs available for taxpayers who cannot pay the taxes owed by April 15. Because any balance due is subject to interest and a monthly late payment penalty, it is in the customer’s best interest to pay in full as soon as possible to minimize the additional charges. Penalties are also assessed for failure to file a tax return, so the customer should file on time even if they cannot pay the balance in full.
There are many ways to pay an outstanding federal income tax liability, including by check or money order, made payable to "United States Treasury." For detailed information on paying taxes by credit or debit card, or other electronic payment, go to http://www.irs.gov/uac/Electronic-Payment-Options-Home-Page, or call the IRS at 800-829-1040.
If the customer cannot pay in full, they should pay as much as possible to reduce the accrual of interest on their account. Please refer to IRS Topic 158 for information needed to ensure that the payment is credited properly.
The customer may consider financing the full payment of the tax liability through loans, such as a home equity loan from a financial institution or a credit card. The interest rate and any applicable fees charged by a bank or credit card company are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code. If they cannot pay in full immediately, the IRS offers additional time, up to 120 days, to pay in full. No fee will be charged for entering this type of arrangement, however, interest and any applicable penalties will continue to accrue until the liability is paid in full. For information on the additional time up to 120 days, call the IRS at 800-829-1040 (individuals) or 800-829-4933 (businesses).
An installment agreement allows the customer to make a series of monthly payments over time. The IRS offers various options for making monthly payments, such as:
- Direct debit from your bank account;
- Payroll deduction from your employer;
- Payment via check or money order;
- Payment by Electronic Federal Tax Payment System (EFTPS);
- Payment by credit card via phone or Internet; or
- Payment by Online Payment Agreement (OPA).
A one-time installment agreement user fee of $120.00 will be charged when they enter into a standard installment agreement or a payroll deduction installment agreement. If they choose to pay through a direct debit from a bank account, the user fee is $52.00. Taxpayers with income at or below 250% of the Department of Health and Human Services poverty guidelines may apply for a reduced user fee of $43.00. You can request the reduced fee using Form 13844 (PDF), Application For Reduced User Fee For Installment Agreements.
Note: The user fee for restructuring or reinstating an established installment agreement is $50.00 regardless of income levels or method of payment.
If the customer enters into an installment agreement, their monthly payment should be based on their ability to pay and should be an amount that they can pay each month to avoid defaulting.
- If they are not able to provide full payment when the tax return is filed, they may request a pre-assessment installment agreement on current tax liabilities by using the Online Payment Agreement (OPA) application on the IRS.gov website. They may also submit Form 9465 (PDF), Installment Agreement Request, or attach a written request for a payment plan to the front of their return.
- If they are not able to provide full payment after filing the tax return, and received a bill from the IRS (a balance due notice), they may request an installment agreement using the Online Payment Agreement (OPA) application on the IRS.gov website. They also may submit Form 9465 (PDF), Installment Agreement Request, or attach a written request for a payment plan to the front of their return or bill.
- They may also request an installment agreement by calling the toll-free number on the bill.
- The customer must specify the amount they can pay and the day of the month (1st-28th) on which they wish to make a payment each month. The IRS will expect to receive the payment ON the date indicated; so be sure to figure mailing time into the date selected. The IRS will respond to the request, usually within 30 days, to advise as to whether the request has been approved or denied, or if more information is needed.
Direct debit and payroll deduction installment agreements enable the customer to make timely payments automatically and reduce the possibility of default. For a direct debit installment agreement, they must provide a checking account number and a bank routing number to initiate the automated withdrawal of the payment.
The customer may contact the IRS by phone or in person, or you may submit Form 9465 (PDF), Installment Agreement Request, through the mail. The form has space for them to write in a checking account number and a bank routing number, or they may staple a voided check to the form.
To initiate a payroll deduction installment agreement, submit Form 2159 (PDF), Payroll Deduction Agreement. Form 2159 must be completed by the customer’s employer. The IRS will set up a regular installment agreement for them and convert it to a payroll deduction agreement upon receipt of the completed form from the employer.
Please visit Payment Plans, Installment Agreements on the IRS.gov website for more information about installment agreements.
Source: Internal Revenue Service at http://www.irs.gov/taxtopics/tc202.html