Friday, June 24

Tax deadline 2022: What happens if you can’t pay in time?

According to the Internal Revenue Service, approximately 129 million Americans received a tax refund in 2021, leaving about 40 million Americans either broke even or owed money. Breaking even is a good thing because it means you gave Uncle Sam exactly the right amount. Of course, owing taxes is a different story.

If you’re facing a large tax bill this year and are having financial difficulties, you might be wondering: What if I can’t pay my taxes? What if I don’t have enough money to pay all of my taxes?

Because each person’s tax situation is unique and there is no one-size-fits-all strategy, you should seek advice from a tax professional. However, the following is a summary of the strategies that experts recommend.

Get a Monthly Installment Plan

This is probably your most appealing option if you’re behind on your taxes but know you’ll be able to catch up eventually. Fill out an online payment agreement application on the IRS website after you’ve filed your tax return.

You can also mail your taxes in with Form 9465, which is for taxpayers who want to pay their taxes in monthly installments. If you owe $50,000 or less in total tax, penalties, and interest, the IRS will give you 72 months to pay your bill. Hopefully, you haven’t missed filing your taxes in the past. You can’t get on an IRS installment payment plan until you’ve filed all of your previous returns.

Contact the IRS right away and set up a payment plan. If you are unable to pay the IRS anything, particularly if you have been affected by COVID, request that your account be declared “temporarily not collectible.”

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The label serves as a placeholder for the IRS to determine your tax status. It won’t help you much beyond that. The IRS will continue to charge you interest and, most likely, late payment penalties.

Request a Compromise Offer

You can make an offer to the IRS for what you believe you are able to pay, and if they accept it, you will be required to pay that amount.

“An offer in compromise allows you to settle your tax debt for less than the full amount you owe,” according to the IRS. If you are unable to pay your full tax liability or if doing so would put you in financial hardship, it may be a viable option. The IRS takes into account the following facts and circumstances:

  • Ability to pay
  • Income
  • Expenses
  • Asset equity

When the amount offered represents the most they can expect to collect in a reasonable amount of time, the IRS usually approves an offer in compromise. Before submitting a compromise offer, it’s a good idea to look into all other payment options.

It’s also worth noting that you’ll have to pay a $205 application fee, though you might be able to get it waived if you meet the agency’s low-income certification requirements. If you owe money and are certain you don’t owe what the IRS claims, you can probably avoid the fee by filing Form 656-L, “Offer in Compromise (Doubt as to Liability).”

Make a Partial Payment or File and Don’t Pay

Whatever happens, don’t lose hope and don’t file. Whether you’re going to do a monthly payment plan or an offer in compromise. If you can’t pay your taxes in full, at the very least send monthly installment payments. If your tax liability for 2021 is $25,000 and you don’t have $25,000, file your return on time and include a check for $500 or whatever you can afford with it.

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Failure to send in your return on time carries a different penalty than failure to pay. Failure to file is even more serious than failure to pay. It will increase by 5% per month until it reaches the maximum of 25%. Failure to pay, on the other hand, is only 0.5 percent per month.

Could I Go to Jail if I Can’t Pay My Taxes?

That is extremely unlikely. You could face serious consequences if you file a false tax return, which is known as tax fraud. When you don’t file taxes for years on end, you’re engaging in what’s known as tax evasion. That could land you in jail.

If you simply cannot pay your taxes, work with the IRS to come up with a payment plan or hire a tax professional.

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