 International Revenue Service IRS tax news options for taxpayers who need help paying their tax bill IRS tax tip 20 22-52 April 5th 2022 Taxpayers who can't pay the full amount of federal taxes that they owe should file their tax return on time and pay as much as possible Why is that the case? Because the IRS has these sticks that they try to hit you with and they call them penalties and interest They're not literal sticks. They're figurative sticks called penalties and interest. Those are the things that we're trying to avoid So if you file late, then you can be you could be subject to penalties and interest And if you don't pay what is owed then you could be subject to the penalties and interest so what you don't want to do is to come to the conclusion that well I can't pay my taxes therefore I'm not going to file the taxes until I can have enough funds in order to pay the taxes Because if you do that the IRS probably will not take action immediately because they're a slow-moving bureaucratic entity But the penalties and interest will most likely be accruing upwards the stick getting bigger That eventually will hit you with it with a larger stick of the penalties and interest at some point in time So what you want to do then even if you can't pay the taxes is to try to still meet the filing requirements filing the taxes or filing an extension if you can and Then trying to pay as much as possible because if you owe taxes paying the taxes will lower the amount of penalties and interest Up front and then if you can't pay the balance then you typically want to set up like an installment agreement So that it's basically a loan that's going to be set up So you have a tax obligation now you got a loan you're still gonna have to pay possibly some penalties and interest in that case But lower penalties and interest and you'll be in compliance with the IRS Which is of course what they're trying to you know get us to do through that's what the laws are trying to do to keep us in Compliance so if you're in compliance you have more negotiating power With the IRS kind of like if you didn't pay your credit card bill or you had a late payment And they hit you with a big penalty for late payment if you call them up and you have good credit They might actually waive the payment and then that's things are good But if you don't have a good credit if your payments are late all the time Then they're probably not going to waive the late payment same thing is kind of true with the IRS here if you have a good Establishment with them if you're in compliance and whatnot then you might be able to waive more of the penalties and interest more often So that's the general idea So this will help reduce penalties and interest if they can't pay their full bill they have some other Options get a loan so one option get a loan in many cases loan costs may be lower than the combination of interest and penalties The IRS must charge under the federal law so one option you can have the default option for most people is probably to set up a payment plan which is basically kind of a loan from the IRS but the IRS charges interest on the amount of the outstanding debt like a loan and possibly still some Penalty on it for the late payment so you could and so that they're not it's not too You know they're using rates that are not like unreasonable They're not like credit card rates or something that like balloon up out of control all of a sudden or something like that But you might be able to find a loan with better rates. So that's another option that you could do It's a little bit more labor intensive because you'd have to actually go to the bank and get a loan in order to pay off the IRS on time avoiding penalties and interest from the IRS but incurring in that case the interest that you're gonna have to pay on The loan so that's that's one option Obviously if you were to get an installment agreement from the IRS It's almost easier because that that way you can usually do that just on the IRS website You don't really have to talk to anyone or anything like that. You could basically go on the IRS website get a loan You could probably get a loan elsewhere You know fairly easily these days, you know, it's still money still pretty pretty readily available at this point Inflation hasn't gone, you know crazy yet, although it seems like it's going it's going that direction But in any case normally the late payment penalty is point five percent per month Not to exceed twenty five percent of unpaid taxes the interest rate adjusted quarterly is currently four percent per year Compounded daily if a taxpayer can't get a loan the IRS offers other options. What other options do they have? You might ask I'll tell you I'll tell you what options they have They've got an online payment plans most individual taxpayers qualify to set up an online payment plan with the IRS And it only takes a few minutes to apply. So this pretty easy setup You can't pay set up the payment plan with the IRS Don't just ignore it. Don't just ignore it because then the stick they like roll the stick down a hill So it gets bigger it accumulates and then when they hit you with it. It's heavier that hurts So anyways applicants are notified immediately if their request is approved There is no need for them to contact the IRS for payment plan or an installment agreement No need to they're basically saying please don't contact us because we don't answer the phone any more these days due to Social distancing rules have decreased our phone capacity whatever so in any case don't call them you can do it online That's the way to do it the agency generally process online payment plans quicker than requests made with Electronically filed tax returns if a taxpayer just filed their return and they and they know they'll owe a balance They may be able to set up a payment plan online Before they even receive a notice or bill so you might think should I wait to basically get that the processing of the return You might not want to because that means you're going to be late on the payment So even if you just filed the return you could set up the payment plan even before the actual tax return is processed before the bill is sent out from the IRS So there are two main types of online payment plans We got the short-term payment plan and the long-term payment plan first the short-term payment plan the payment period is 180 days or less and the total amount owed is less than a $100,000 in combined tax penalties and interest. There's no fee for setting one up Though interest and the late payment penalty continue to accrue and then we got the long-term payment plan payments are monthly So the first payment plan, you know, it's it's a short-term plan 180 days So then you're you're saying I just need a little bit of time to to to pay off And then the long-term payment plan is like well, there's a big balance. I can't pay it off I need basically like a standard installment loan kind of set up where I pay it monthly and hopefully I can pay it off in Chunks like that. So we got the long-term payment plan in that case payment are monthly and the amount owed Must be less than $50,000 in combined tax penalties and interest if the IRS approves a long-term payment plan also known as installment agreement a set-up fee normally applies So you got the set-up fee kind of like a credit card late payment fee But like the credit card you might be able if you're in good standing to try to try to waive that possibly And if you're in good standing, they may actually do that like because you're like a good Taxpayer customer or whatever so low-income taxpayers may qualify to have the fee waived or reimbursed in addition for anyone who filed Their return on time the late payment penalty rate is reduced while an installment agreement is in effect So it lowers the late payment penalty the late payment penalty accrues at the rate of point two five percent per month Instead of one percent per month So actually the interest rate that they charge is not Too bad, but they also tack on you still got this penalty That's a lower penalty, but still a penalty and that's why if you actually got a loan from a bank You might actually be able to get a better rate than the penalty and interest So it's another option you can look into so taxpayers who do not qualify for an online payment agreement may still be able to pay in Installments taxpayers should review the additional information on payment plans page an irs.gov for details delayed collection If the irs determines a taxpayer is unable to pay it may delay collection until their financial condition improves however The total amount owed will still increase because the penalties and interest continue to accrue until the taxpayer pays in full taxpayers can request a delay by calling the phone number on their notice or eight hundred eight two nine ten forty eight hundred eight two nine ten four T Penalty relief. I need some relief from these penalties these sticks. You keep hitting me with it's like I can't even see the stick Keeps hitting me Penalty relief some taxpayers qualify to have their late filing or late payment penalties reduced or Elimitated this is done on a case-by-case basis based on reasonable cause Alternatively where a taxpayer has a history of compliance the irs can typically provide relief for first-time abatement program So if it's if it's like this is a weird situation Which it is for many people because of tax codes been changing changing working situations changing home life situations Moving from w2 employment to gig work or schedule sees and whatnot So it might be if many people's first time where they're saying hey I didn't actually keep up with my payments because it's a crazy year this year Well, then you might you might be able to get that first time abatement kind of like a credit card when it's like I didn't I didn't make the payment, but it's the first time I didn't make the payment wave this hundred dollar penalty plays and then they might do it because you're because you're typically Are in good standing so taxpayers should review the penalty relief page on irs.gov for more information We also have the offer in compromise note that offering compromise is the type of thing when you look at the commercials that say We can help you reduce your tax debt and this and that if you owe over $15,000 or something like that. This is the thing that they're kind of alluding to But just note that you have a lot of this information on the irs website So if you are getting help for something like an offer in compromise with a large outstanding balance That you're looking into one you want to make sure you do your research in terms of who you're getting help from because a Lot of times the commercials that you see on TV aren't actually firms their advertisement agencies Then we'll then we'll allocate people possibly two different firms Which may not be a bad thing, but that just means you have no idea which firm you're actually going through because you're going through an advertisement agency so kind of you know be aware of that and Then do your research on the offer in compromise because it's pretty systematic And there's they have all the information on the irs website to kind of see how it how the whole thing works So you can see if you would qualify for one or not pretty for most situations pretty clearly So some taxpayers qualified to settle their tax bill for less than the full amount do through an offer in compromise So you're gonna say I got a fairly large tax bill. I want to settle for less now Again, why would the irs do that because again you're thinking of them not they're not a charity over here the irs There you can think of them kind of like a business kind of like the bank and they're gonna say well Why would they not do that and because you're in what if your income is so low that there's no possible way that you're Going to pay the tax bill that's basically what's happening here and they're gonna say I Understand that you're not gonna be able to pay the tax bill So what it would be in both of our best interests to lower the tax bill to something you can pay Because then that's better than not getting any money at all would be the position of the person that you're getting the money from right So that's that's gonna be the general idea So what would they need then to prove that they're gonna need individual income statements like a balance sheet in an income statement Those are the forms that you're in essence gonna have to fill out to determine if if an offer in compromise would be appropriate would be the general idea and if you're if you're living in a Very expensive place or house or something like that and you're driving around a hundred thousand dollar car or something like that Then it's less likely you would think that the offer in compromise is going to say oh Well, you clearly can't don't have the means to pay the bills, right? So and if you're making, you know a lot of money per month Then the iris is less likely to determine that you're gonna not be able to pay the bills, right? So that's so that's the kind of idea that's with the offer in compromise So there is a 205 non-refundable OIC offer in compromise application fee However, it is generally waived for individual low-income taxpayers offers require a partial payment of the offer amount Except for offers filed based on debt as to liabilities. So the offer in compromise Pre-qualifier tool there's a link to the pre-qualifier tool. So again, do your own research on it You can get a pretty decent idea as to whether it would be applicable to you Using the tool and if it is then you can go from there and say say do I should I get more help from this? Or do I want to kind of go at my own do my own thing here? Then you can check that out, but there's the tool so I can help determine eligibility for individuals and Interested in applying there's a link to that and I'll link to all that other Stuff that we said there was a link to in here and there'll be a link to this in the description