A popular saying goes that nothing is certain in this world aside from death and taxes. Taxes are a constant part of our lives. However, many individuals find the whole process confusing. Some would even pay for a tax expert to help them understand the process and prevent errors from happening. Some taxpayers receive tax returns while others end up owing taxes. These owed taxes can accumulate over time and are also referred to as back taxes. If the taxpayer does not pay their tax bill on time, they may be categorized as delinquent and served with interest, fees, and liens. If someone cannot pay their taxes on time, experts recommend they look for other support options. They can go with payment plans, relief, or forgiveness.
Tax relief is one way for individuals and businesses to lower the tax amount that they owe when they file their taxes. Basic tax relief includes tax credits, benefits, and deductions. Those who filed their taxes but cannot pay them within the deadline can look into IRS payment plans, currently not collectible status, or offers in compromise.
Payment Plans
Taxpayers may find that they do not have the financial means to pay their taxes in a given year due to various reasons. If this happens, there are available avenues they can take in order to prevent delinquency. IRS has payment plans for taxpayers who can satisfy certain requirements. Note that payment plans also have interest, fees, and penalties. The IRS offers two payment plans – short–term and long-term.
The short-term payment plan is available to taxpayers who can pay their tax bill in less than 180 days or 6 months. The taxpayer should also have less than $100,000 of debt to qualify for this plan. The short-term plan does not have set up fees and allows taxpayers to pay by debit card, credit card, check, money order, or linking a savings or checking account to the plan account.
The long-term payment plan is offered to taxpayers who owe less than $50,000 in combined tax, interest, and penalties. A long-term plan can last between 36 to 72 months depending on the amount owed. Low-income taxpayers are individuals at or below 250% of the federal poverty level. They can reimburse their set-up fees if they can satisfy the IRS criteria. Below is a summary of qualifications for payment plans.
| Type of Payment Plan | Minimum Debt Required | Maximum Debt Required | Set-up Fee | Accepted Payment Methods |
|---|---|---|---|---|
| Short Term | None | $100,000 | None | Debit card, credit card, check, money order, savings or checking account |
| Long Term | None | $50,000 | $31 to $225 | Debit card, credit card, check, money order, savings or checking account |
Sometimes, taxpayers can settle their tax debt for less than the actual amount they owed. Taxpayers can negotiate with the IRS if they cannot afford to pay their income tax or if paying the tax bill would cause financial hardship. To determine eligibility, the IRS considers income, expenses, ability to pay, and asset equity.
In order to qualify for an offer in compromise, a taxpayer should have updated tax filings and estimated tax payments. To be eligible for an offer in compromise can be difficult since there is a huge fee required. It is recommended to seek other options if available.
Taxpayers who want to apply for an offer in compromise are required to pay a non-refundable fee worth $205. Low-income applicants can request to have this fee waived. Although it’s not a requirement, applicants can hire tax professionals to guide them through what can be a complex process. Applicants should also ensure that their tax returns are up to date and that they are not involved in any bankruptcy proceedings. Applicants should also prepare for the initial payment, 20% of the negotiated amount, or the first installment.
There are some reminders before filing an application. The IRS can put down a tax lien during the proceedings until they approve the application or the taxpayer is satisfied with their side of the agreement. Offers in compromise are also included in public records and these include the taxpayer’s name, address, the amount owed, and the terms of the compromise.
If a person’s financial capacity can only cover daily needs but not their tax burden, they may be eligible to get a currently not collectible status. This is one of the tax relief methods from the IRS. It is temporary and entails periodic checks on one’s income by the IRS to determine if one can pay or not. Applicants need to provide income and expenses monthly if they want to apply for this status. These details will illustrate that the taxpayer is currently experiencing financial difficulties and will not be able to pay their taxes as of now.
A currently not collectible status means that the IRS will not attempt to collect taxes from someone who holds that status. Although the tax debt is not collectible, it may still accrue interest and penalties. Tax returns that the individual receives while having this status will go toward their balance. Remember that this status does not eliminate the tax debt. Think of it as more of a pause button on taxes until one is able to pay again.
Individuals who are burdened by their tax debt can look into tax relief companies. These are companies and organizations that can represent taxpayers when it comes to communication and negotiation with the IRS. Some companies may promise to lower tax bills by a significant amount through tax relief programs. However, before signing a contract to enlist a company’s service, consider whether it is worth paying for tax relief services.
Getting help from a tax relief company involves professionals such as tax specialists and attorneys who can easily navigate the complex process. These experts help individuals determine their eligibility for tax relief programs and assist in the application process. Although this sounds great, tax relief services do not come cheap. Rates for these companies can reach $3,000 to $4,500.
Before spending a huge amount of money, it’s crucial to evaluate a company’s trustworthiness and reliability. There are a lot of scams in this industry that take advantage of confused and scared taxpayers. The Federal Trade Commission advises against companies that promise to lower a tax bill. The FTC claims that most taxpayers will not qualify for the kind of programs that these scam companies are promoting.
The companies cannot settle tax debt completely and many will not even provide the required documents to the IRS for the programs they’re selling. A lot of these companies also fail to offer refunds which leaves customers with a bigger financial problem.
The world of taxes and the IRS can be an intimidating thought, especially for people who owe them something. But if there is any unsettled debt, it’s recommended to stay in control and prevent huge consequences from manifesting. Taxpayers can prepare documents for filing as soon as the tax year starts if they want to stay abreast. Determine the current debt, gather tax records and other relevant documents, and apply for a manageable payment plan to avoid delinquency.
