Payment and Penalties

Any taxpayer who owes taxes is required to pay that amount to the IRS. Taxpayers who cannot pay may qualify for special plans that allow them to pay the taxes over time or settle the bill by paying a smaller amount. However, if the taxpayer has any assets at all, the IRS can seize and sell these to cover the taxes that are due.

I only sent a check for half the amount I owed when I filed my tax return. Will I hear from the IRS?

Yes. Once the IRS determines your math is correct, that you owe a certain amount and that you did not pay all of it, you will receive a "Notice of Tax Due and Demand for Payment"-your tax bill.

Sidebar: Interest and penalties continue to accrue on the amount owed as long as it is not paid.

TIP: Once a taxpayer receives a bill, the IRS expects it to be paid by any means possible-credit card, a loan, money from a 401(k), etc.

I can't pay my tax bill. What do I do?

First, you must file a return even though you cannot pay. Request that you be allowed to pay out the amount over time. The IRS permits taxpayers to pay taxes under installment agreement plans.

How do I set up an installment agreement?

You can file a special form requesting an installment agreement (IA). Form 9465 is available online. You can also call the IRS at 800.829.1040. You should receive a response within 30 days.

TIP: You will not receive tax refunds you might be eligible for in subsequent years while you are paying under an installment agreement. Any refunds that are owed to you will be applied to the debt.

Sidebar: A taxpayer who owes less than $10,000 (and is not currently overdue for other years) has a right to pay out the amount under an IA, according to the IRS manual. To get more specific information about provisions and requirements, go to the IRS manual.

I cannot even afford to pay the taxes I owe under an installment agreement. What do I do?

You can request an Offer in Compromise or OIC. You must fill out an OIC package. You will calculate what amount, if any, you can offer to settle your tax bill. If you are facing economic hardship or other special circumstances and the IRS grants an OIC, you have no further tax liability (for that tax year).

Sidebar: Only taxpayers who do not qualify for an installment agreement (typically those individuals whose total monthly income falls at or below income levels based on the Department of Health and Human Services poverty guidelines) are considered for an OIC.

Will I have to pay a penalty if I do not pay my taxes on time?

Yes. Both interest and penalties are assessed against taxpayers who owe money to the IRS. The interest rate is tied to the federal short-term interest rate and is adjusted every 3 months. Additionally, taxpayers must pay a late payment penalty of one-half percent of the tax owed for each month the taxes are unpaid.

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