Choices for Taxpayers Who Don’t Have Cash to Pay Their Income Tax Bills

April 6, 2017

As the April 18th deadline for filing 2016 income tax returns draws near, you might be concerned because you don’t have the cash to pay the balance due on your return. You can avoid penalties, but not interest, if you get an extension of time to pay from the Internal Revenue Service (IRS). But such extensions merely postpone the day of reckoning for the period of the extension (generally, six months). The good news is….you may be able to defer paying your income taxes if you qualify for one of the following payment options.

Paying in full within 120 days. A taxpayer can pay the full amount owed within 120 days, without having to pay any fee, but interest and any applicable penalties continue to accrue until the tax is paid in full. Taxpayers can use an online payment application (irs.gov/individuals/online-payment-agreement-application), or call IRS at 800-829-1040 (individuals) or 800-829-4933 (businesses).

 Installment agreements. Taxpayers unable to pay the full amount owed within 120 days may be able to enter into an installment agreement with IRS to pay the tax. Apply using Form 9465, Installment Agreement Request, and Form 433-F, Collection Information Statement. (irs.gov/individuals/payment-plans-installment-agreements)

Offer in compromise (OIC). An OIC is an agreement between a taxpayer and IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Taxpayers who can fully pay the liabilities through an installment agreement or other means, won’t qualify for an OIC in most cases. IRS says that to qualify for an OIC, the taxpayer must have filed all tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees. (irs.gov/taxtopics/tc204.html)

Temporarily delay the collection process. One final option, if payment would create financial hardship, is to ask IRS to delay collection until the taxpayer is able to pay. If IRS determines that the taxpayer cannot pay any of his or her tax debt, it may report the taxpayer’s account as currently not collectible and temporarily delay collection until the taxpayer’s financial condition improves. Interest and penalties continue to accrue until the tax debt is paid in full. (irs.gov/businesses/small- businesses-self-employed/temporarily-delay-the-collection-process)