What if you can't pay the IRS? Can't people go to jail for not paying their taxes?
There's something especially scary about arriving at the last line on your 1040 and realizing there's no way you have that much money.
I was helping a friend do her taxes, and she came to that point. We've been figuring out what she can do, and here's the good news: it's not as bad as you might think.
Yes, people can go to jail for not paying taxes, but that's only if they have the money and hide it or refuse to pay. If you've simply run out of money and can't afford to pay, that's not a crime and you won't be arrested or go to jail.
However, "willful failure to file a return" is a crime. So the first thing to do is mail your tax form on April 15 with no money, or with what you can pay, rather than hold onto it and hope the IRS won't notice. Because they will notice.
If you've received any W-2 forms or 1099 forms or anything showing you received money, the IRS received a copy of those forms too, so they'll eventually connect that income with you. When they do, they'll fill out a tax form for you, tell you what you owe and tack on some extra penalties besides. Even without the penalties, they might ask for more than you actually need to pay, if they're not aware of deductions or tax credits that you can take.
So finish filling out your tax form with all the deductions and credits you can legally claim and mail it in by the deadline, even without a check. That's the first step, and it'll save you a lot of bigger headaches in the long run.
Pay by Credit Card
You've probably already thought about ways to try to pay the IRS, by borrowing from family or friends, getting a short-term loan, that kind of thing. If you have a credit card, you can also use it to pay. You'll be charged a "convenience fee" of around 2% and you'll also need to pay the interest that your credit card charges, but if your credit limit is high enough and you can handle the payments, using your card may be easier than working out a deal with the IRS. See this chart for how to do it and what the fees are.
Another option is to get a cash advance on your credit card and use that to mail in a check. Depending on what the cash advance fees are on your credit card, it might be cheaper than the "convenience fee."
Ask for 120 Days to Pay
If you can't use a credit card but you'd be able to pay the full amount within the next 120 days, call 1-800-829-1040 to make arrangements with the IRS. You'll still owe interest, but it'll be cheaper than the next option, an installment agreement, which costs at least $43 and up to $105 plus interest. However, the good thing about an installment agreement is that you can spread the payments out even longer than 120 days if necessary.
Request an Installment Agreement
If you sent in your tax form without payment in full and haven't made arrangements for paying in 120 days, the first thing that will happen is you'll get a letter from the IRS asking you to pay, with penalties and interest tacked onto your original tax. They'll still give you the option to pay by credit card then, or you can just mail a check if you've managed to come up with the money.
If you can't pay it all when you get the letter, try to pay part of it, since penalties and interest will only be added to the amount that's still due.
Then request a monthly installment agreement from the IRS. If you owe less than $50,000, you can do it online here.
You can also request an installment agreement on paper by filling out Form 9465 and mailing it in.
If you're approved, they'll tell you within a month or so and send you a bill for setting up the plan, which is $105 normally, or $52 if you agree to let them withdraw the money directly from your bank account, or $43 if you're low-income. Plus they'll tack on more interest and late penalties. But at least you'll be able to make monthly payments instead of being in default and having a tax lien or levy against you.
If You Can't Make Payments Now, But Maybe Can Soon
But that only works if you have a job or some way to make monthly payments. If you have a temporary problem, like you're out of work now but will probably find a job soon, you can call the IRS at the number on your tax bill and see if they'll suspend collection temporarily (though they'll still keep adding interest and late fees. They love to do that). If you're in the military, check out this page on the IRS site, especially the section headed "Deferral of Payment."
If You'll Never Be Able to Pay It All
If you don't think you'll ever be able to pay the whole amount, there's still hope. You can propose an Offer in Compromise, which means some of your tax debt will be forgiven, and if you pay part of it, they'll consider it paid in full. More about that next time. And if you need to get your credit rating fixed up in general, check out services that help you consolidate or cut your other debts and improve your credit score.
8:45 p.m. March 26
What if you start an installment plan and can't make all the payments on time? Is it better not even to start?
9:19 p.m. March 26
If you miss a payment, there's a chance you can get back on it. They used to be more strict about it.
10:22 p.m. March 26
how r they gonna no you owe anything? Ur better off not filing in the 1st place
11:00 a.m. March 26
Unless you've never filed a tax return in your life and all the money you were paid was totally under the counter and never documented, they're going to know. Besides, another reason for filing is you start the statute of limitations running.
11:46 a.m. March 26
Besides, I'm not going to tell people to break federal law. Sheesh, how dumb do you think I am, LOL? Seriously, I've always figured it's better to try to clear stuff up head on, rather than hoping it'll go away if you ignore it. I've tried that and somehow it doesn't work. At least not when men in suits or uniforms are involved.
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