This morning, I talked about what happens if you file your taxes late. The short version is that you’ll face penalties that are more severe than if you had file your return (or request an extension) on time, but fail to include payment for the amount due.
Okay, but what if you can’t afford to pay the amount due? As it turns out, the IRS allows for what they call an “Installment Agreement, ” which is basically a payment plan that lets you pay what’s due in smaller, more manageable increments.
If you owe $25k or less…
If you owe $25k or less, you can us the Online Payment Agreement (OPA) to set up your payment plan. Alternatively, you can use Form 9465. If you’ve already received a bill from the IRS, you also have the option of calling the number on the bill.
If you owe more than $25k…
If you’re in the unfortunate situation of owning more than $25k, you may still qualify for an Installment Agreement, though you might have to fill out Form 433F in addition to using the OPA or filing Form 9465.
Either way, it’s best to pay now…
Even if you set up a payment plan, you’ll still face penalties and interest for your underpayment, so it’s best to pay your taxes when they’re due – if at all possible. But if not, then be sure you jump through the proper hoops to keep yourself out of trouble. You don’t want to anger the IRS.
(More info on Installment Agreements from IRS.gov: link)
4 Responses to “What if You Owe Income Taxes and Can’t Afford to Pay?”
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Well, I called the IRS. Believe it or not, they were so helpful! I thought I would start by offering $500 per month, but they suggested $200 per month, which I accepted. They also told me to file 2011 and not make payment, so they could roll the remainder owed for 2010 together with 2011, and make a new agreement. It was really easy, and they were very nice. Just be honest. They know there are a lot of people in trouble.
I lost my job and my sister did too. My sisters house was foreclosed on..so after I lost my job..I used my 401 to buy us a house to live in. My unemployment is being redetermined..so no money is coming in. Now I found out I owe $4100.. in income taxes because of the 401..what can I do???? please help
Well, we just discovered that we are in trouble. When we filed our 2010 taxes on October 15th, we were informed that we owe close to 10K for 2010 and an additional 10K for 2011 in estimated taxes. My wife has a good job, has a 401K, and she owns our house which she acquired before we got married 8 years ago. We file jointly, which may be a mistake.
I work on a 1099 as a commissioned salesman. Over the last eight years, I have always been under contract, however now, for the first time, I am without a contract, the equivalent of being unemployed.
My wife nets around 5K per month and our monthly nut is around 7K. This amount includes paying slightly more than the minimum payments due on credit card debt that we have amassed as a result of trying to survive in this recession. Total credit card debt is app. 100K. Included also is a monthly payment of close to 800 dollars which goes to pay back an existing loan on my wife’s 401K.
Obviously, we are under water. However our apartment is worth about 500K and we are carrying an adjustable rate mortgage on 250K (interest rate is ridiculously low)with a monthly payment of around $500.
I am toying with the idea of calling the IRS to set up a payment plan. I am thinking of offering $500 dollars per month, however the rules seem to indicate that you have to file all taxes before you set up a plan. Since we haven’t filed for 2011, how do we get the estimated taxes included in the payment plan? Are we better off to request temporary noncollectable status, or will the IRS insist that we sell our home and/or liquidate my wife’s 401K in lieu of setting up a payment plan? Personally, I have no assets at all.
This is so depressing!