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What if you filed on time but didn’t pay taxes owed?

Posted on June 22, 2018

So, you filed on time, but didn’t pay the taxes owed. The Internal Revenue Service is now directing its attention in your direction. Look for an IRS tax bill in the mail in the next few weeks. These notices of a balance due are generally mailed out in June and July.

What should you do if you get an IRS notice of payment due?

The good news is that the IRS accepts multiple types of payment. Taxpayers may use electronic funds transfer, credit card, check, money order, or cash.

The bad news is that failure to pay in full as requested by the IRS will accrue fines. If you are unable to pay what you owe, contact the IRS as soon as possible.

Here’s how to pay:

  • Direct Pay is a free service that allows taxpayers to pay from a checking or savings account.
  • Electronic Federal Tax Payment System (EFTPS) is a free U.S. Department of Treasury service that facilitates payment by phone or online.
  • Use a debit or credit card payment.
  • Taxpayers may also pay by check or money order payable to the U.S. Treasury, in person or through the mail.
  • You can also pay cash at some IRS offices or at a participating PayNearMe Never send cash to the IRS by mail.

What if you aren’t able to pay your tax amount due?

First, contact the IRS as soon as possible. Even if you don’t know how you can pay the money, make contact. The IRS will work with you to set up a payment plan, especially in hardship situations. Not answering an IRS letter sets you up for much harsher penalties. You may also choose to work through your CPA, who can contact the IRS on your behalf and help walk you through the process.

Here are some IRS payment options that are frequently offered:

  • Online Payment Agreement — If you owe $50,000 or less in combined income tax, penalties and interest or own a businesses that owes $25,000 or less in payroll tax and have filed all tax returns, you may qualify for an Online Payment Agreement. Most taxpayers qualify for this option, and an agreement can usually be set up in a matter of minutes.
  • Installment Agreement — Installment agreements paid by direct deposit from a bank account or a payroll deduction can also help taxpayers avoid default on their agreements while reducing the burden of mailing payments. Certain fees apply.
  • Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Your CPA may be able to help you negotiate this.
  • Offer in Compromise — Some struggling taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool, or work through a qualified CPA.
  • Teipen Selanders Poynter & Ayres has found that sometimes securing a personal loan to pay the amount due saves time, hassle, and in many cases, money. The cost of a loan may be lower than the combination of interest and penalties the IRS must charge under federal law.

 However…. even if you work out a payment solution with the IRS, the agency may still need to file a Notice of Federal Tax Lien to secure the government’s interest. That’s because Federal law requires the lien to establish priority as a creditor in competition with other creditors in certain situations, such as bankruptcy. Unfortunately, once the IRS files a lien, it will appear on your credit report and harm your credit rating.

The best option, say Teipen CPAs, is to stay current on taxes. Taking steps now to make sure you don’t fall behind on future taxes is the right thing to do. We encourage our clients to perform a “paycheck checkup” to see if they are having the right amount of tax withholding taken from their pay. Remember, the recent Tax Cuts and Jobs Act changed the way tax is calculated for most taxpayers. Ask us about this, or use the IRS Withholding Calculator  on IRS.gov.