Tax time is here, but you cannot afford your taxes? Ignoring it is definitely not a solution. What you need right now is proper tax planning that fits your financial situation.
What Happens If You Do Not Pay Taxes?
If you miss even one day of tax day, the IRS will immediately start collecting interest and penalties. The interest, which is compounded daily, will depend on how much tax you owe. This means it is assessed on the previous day’s balance plus the interest. Besides, interest rates are determined every three months and can vary based on the type of tax.
A failure-to-pay penalty also applies until you pay your tax bill in full. That is why it is important to pay off the amount you can as quickly as possible, and create a payment plan for the remaining debt.
- If you still have not paid your tax debt within a few months, the IRS will send you letters with information about your debt, interest, and penalties. These letters will continue until the payment is completed.
- If you ignore these letters, the IRS will start making collection calls and taking out tax liens against you. Besides, the IRS may file a Notice of Federal Tax Lien, notifying your creditors that the government has a legal claim on your property. These may cause a problem when you apply for a new job or bank credit.
- If you still have not paid your taxes, the IRS may send you a letter titled “Final Notice of Intent to Levy and Notice of Your Right to a Hearing”. 30 days after this letter, they may garnish your wages or seize your assets (personal belongings, real estate and bank accounts). This way, they can apply any money they receive from your wage or the sale of your property to your unpaid tax bill.
What are Your Options When You Cannot Pay Your Tax Bills?
First and foremost, it is worth pointing out: Even if you cannot pay your taxes in full, you must still file your tax on time and request an extension until due date. However, this extension applies only to the filing deadline, so it will not give you more time to pay.
It is obvious: if you do not file, you will incur a failure-to-file penalty—if you pay late, you will have to pay interest and penalties on any taxes you owe for the year.
Payment plans
Depending on your financial situation, the IRS offers several payment plans. While online applications are sufficient in some cases, more complicated agreements request more documents showing your financial status. And, payment plans are suitable for taxpayers who can’t pay in full so that it helps them meet their obligations.
Online Payment Plans
You may qualify for a self-service, online payment plan to pay off your outstanding balance over time. Once your online application is complete, you will receive immediate notification of whether your payment plan has been approved, without having to call or write to the IRS.
Online payment plans include:
Short-term payment plan – The payment period is 120 days or less and the total amount owed is less than $100,000 in combined tax, penalties and interest.
Long-term payment plan – The payment period is longer than 120 days, paid in monthly payments, and the amount owed is less than $50,000 in combined tax, penalties and interest.
Do you already have a payment plan? You can still use the online payment plan to revise your existing agreement. This way, you can update payment dates, payment amounts, and bank information.
Installment Agreement
If you do not qualify for an online payment plan, you may request an Installment Agreement (IA) by submitting Form 9465. There are four main types of IRS installment plans available: Guaranteed, Streamlined, Non-streamlined, Partial Payment.
If the IRS approves your IA, a setup fee may apply depending on your income. Moreover, once you request an IA, the time the request is pending pushes out, or suspends the running of, the initial ten-year collection period.
Feeling Overwhelmed?
Offer in Compromise
An Offer in Compromise is an agreement with the IRS that allows you to pay less than the full amount owed. But how do you understand that you are qualified for the IRS Offer in Compromise? You can see your eligibility by answering various questions on our free “Offer in Compromise pre-qualifier tool”.
Currently Not Collectible Status (IRS Hardship Status)
If you cannot pay the IRS because of your financial hardship and can prove that, the IRS will not ask you to pay until your living conditions improve.
What About Penalty Relief?
Taxpayers may qualify for penalty relief if they tried to comply with tax laws, but were unable to do so due to circumstances beyond their control.
Do You Need Professional Help?
We are to help you get the best outcome. So what we can do for you:
- File your taxes
- Find the best tax credits and deductions
- In negotiating with the IRS
Stop running away from your tax obligations because you cannot ignore the IRS forever. Call us now.
Frequently Asked Questions
If you miss even one day of tax due date, the IRS will immediately start collecting interest and penalties.
The IRS offers a short-term payment plan (120 days or less) for bills that are less than $100,000. And long-term monthly plans are available for balances less than $50,000.
Pay as much of your tax bill as you can, and consult an experienced tax lawyer to figure out which payment plan is suitable for the remaining amount.
If you purposely dodge paying your taxes, yes, it’s a major crime. In the end, it could lead to five years in jail and a fine up to $250,000 for individuals (or $500,000 for businesses).
