As a lot as we’d wish to, generally it simply isn’t potential to pay your total tax invoice all of sudden, particularly in the event you owe just a few thousand {dollars}. Borrowing cash from a financial institution or members of the family will not be an choice.

In case you can’t meet your tax invoice obligation, what are you able to do to keep away from wage garnishment by the IRS?

It’d sound shocking, however the IRS has a comparatively taxpayer-friendly cost plan. If that wasn’t sufficient to make you ask which universe that is true in, most individuals will really qualify for the plan.

For these of us who’re unfortunate sufficient to fall into the 21% who will owe taxes this yr (in line with Forbes), the IRS’ cost plan is usually a good choice for paying down a big tax invoice.

For people, the IRS has two funds plans. One is long-term and the opposite is short-term. There are literally two long-term choices — one with computerized withdrawals and the opposite with out.

In case you owe lower than $100,000 and will pay your tax invoice in 120 days or much less, there received’t be any setup charge on your cost plan. Curiosity and penalties will nonetheless accrue. You may pay with computerized funds utilizing your checking account, test, debit card, or bank card.

You’ll incur further charges when utilizing playing cards.

Lengthy-term plans are for taxes owed of lower than $50,000 and paying over a interval that’s longer than 120 days. Lengthy-term cost plans have setup charges. These charges might be waived for low-income earners. The charge for this plan is $31. Fee is finished by direct debit.

This plan is for these owing lower than $50,000 and needing greater than 120 days to pay their tax invoice. If for no matter purpose you may’t use direct debit and would fairly pay by test, card, or cash order, that is the cost plan you’ll wish to select.

For that comfort, you’ll pay a setup charge of $149 as an alternative of $31. Make sure that the non-direct debit choice is definitely worth the $118 additional. Low-income earners can pay a setup charge of $43, however could have it waived in the event that they meet sure circumstances.

An installment plan means you may have filed your return however did not pay. You’ll incur a penalty for failing to pay on time and curiosity will likely be due quantity on the quantity owed.

In case you don’t pay in full by April 15 and are accepted into an installment settlement, you’ll pay a 0.5% penalty on the quantity not paid. In case you owe $1,000, that’s a $5 penalty.

You’ll additionally pay 0.25% every month on the unpaid stability. Let’s say on $1,000 you arrange an installment plan to pay $100 every month. After the primary cost, the stability is $900. Curiosity on this quantity will likely be $2.25.

Along with penalties, you’ll additionally pay curiosity on any unpaid taxes and penalties. The rate of interest adjusts each three months. The rate of interest is the federal fee plus 3%. If the federal fee is 2%, the rate of interest will likely be 5%.

You may apply for an installment plan on-line on the IRS web site: https://www.irs.gov/funds/online-payment-agreement-application. In case you owe lower than $10,000, your plan will routinely be accepted in the event you additionally meet the next circumstances:

• Over the past 5 years, you and your partner submitting collectively don’t owe taxes, haven’t entered into an installment settlement, and have filed on time.
• You’ll pay due taxes in three years and adjust to all tax legal guidelines.
• You’re not financially capable of pay your taxes. Even in the event you will pay your taxes, an installment settlement continues to be permitted in the event you owe lower than $10,000 and meet different standards.

In case you had an installment settlement through the earlier yr, it wouldn’t stop you from coming into into one other installment settlement for the following tax yr so long as you’ve paid the installment in full earlier than taxes are due.

An installment plan with the IRS can lead to excessive charges, however the sooner it’s paid off, the less charges you’ll pay. In case you can repay your taxes due in 120 days, you received’t incur a setup charge. That’s an additional 4 months to pay your invoice.

Penalties and curiosity will nonetheless accrue on the unpaid stability. As a final resort, you may pay the installment previous 120 days, however that is the most costly choice.

Additionally, attempt to have it paid earlier than April 15 of the following yr otherwise you’ll have issue attempting to arrange a brand new installment plan.

Remaining Ideas

Whereas proudly owning cash to the IRS is not a superb factor, establishing a cost plan is a brilliant transfer. Moreover, be sure you file your taxes on time to keep away from much more penalties. 

Absolutely the worst factor you are able to do is just ignore it or keep away from it as a result of you may’t pay. They solely factor that may come of that’s owing extra money sooner or later, or worse – you may really go to jail. Now, that is uncommon, however truthfully, do not mess with the IRS!