What Can I Do If I Owe Taxes and Can’t Pay?
March 10, 2017 : Jim Buttonow - The Tax Institute
Each year, about 24 million tax filers owe taxes when they file their returns. Do all of them pay with the return? The answer, of course, is no.
Many people (about 4 million) set up alternative arrangements to pay, such as a payment plan. And others ignore the taxes they owe – but they’re not off the hook. The IRS can take their wages straight from an employer, or seize money directly from their bank accounts.
If you owe taxes and can’t pay, there are four basic options you have with the IRS:
- Extension to pay: You can ask the IRS for up to 120 days to pay your tax bill.
- Payment plans: There are several types of payment plans (also called installment agreements) with different terms, depending on your circumstances.
- Deferred payment: The IRS calls deferred payment “currently not collectible” status. It means that if you can prove you’re in a financial hardship situation, the IRS won’t ask you to pay until your circumstances have improved.
- Offer in compromise: If you have few or no assets and have trouble paying your necessary living expenses, you may be able to settle with the IRS for less than you owe. You must fit strict criteria to qualify for an offer in compromise.
The good news is that you can request and set up one of these alternatives with the IRS if you qualify, or you can get a tax professional to handle the issue for you. More good news: the interest rate is 4 percent on payment plans.
The bad news: If you ignore your balance and don’t make any moves to fix it, the IRS can levy your bank accounts, garnish your wages, and issue federal tax liens that can destroy your credit and make it difficult to sell property or get a loan.
The moral of the story: Get into an arrangement to pay the IRS. For more tax tips, connect directly with a tax pro at H&R Block!