Why is April 15 Tax Day?
The procrastinating taxpayer's best friend, Form 4868

IRS offers several options for taxpayers who can't pay their tax bills

Did you put off filing your tax return until the last minute because you knew you'd owe Uncle Sam?

Irs shakedownYou, my friend, are not alone. Although the vast majority of taxpayers get refunds, there are those of us for whom Tax Day is pay-up day.

But if we're short of the cash on April 15 -- or this year, April 17 -- the Internal Revenue Service does offer us, as today's penultimate filing season 2012 Daily Tax Tip notes, some tax payment options.

Short-term installment agreement: While it's true that on Tax Day both your tax return and any tax you owe must be paid, there's actually a little known option that could get you up to 120 fee-free days to pay your tax bill.

This is the case with a short-term payment agreement with the Internal Revenue Service.

It might be just the answer if you don't have the cash to pay your tax bill now, but will have the money within the next four months.

In this situation, the IRS will waive installment agreement fees. The agency will, however,  continue to tack on interest charges to your unpaid tax bill. But a few months of interest is a lot less costly than years of tax bill installment payments.

Check out the short-term option on the Online Payment Agreement application or by calling the IRS toll-free at 1-800-829-1040. Once the IRS approves your short-term payment extension, you'll receive written confirmation within 10 days.

Remember, this is not a free four months vacation from paying your taxes. Enter into this only if you truly plan to wipe out your tax bill in the shorter time frame.

If you don't meet the short-term plan terms, you can bet you will make it to the top of the IRS' delinquent list.

Longer-term tax payment installment plans:  If you cannot pay in full immediately or within 120 day, you may qualify for monthly installment payments for up to three years.

In addition to collecting interest and penalty charges under this arrangement, the IRS also requires a  $105 user fee. That application fee is cut to $52 if you set up an installment plan where your tax payments are deducted directly from your bank account.

Or if you're really cash-strapped, the IRS offers a reduced fee of $43 for eligible individuals with income at or below certain levels.

Installment plans are usually granted as long as you've previously filed and paid taxes in a timely manner and your individual tax bill is less than $10,000. 

You'll have to fill out Form 9465, Installment Agreement Request, to get the payment plan going.

Fresh Start payment options for the unemployed: If your tax bill is just one of many you owe because you lost your job, then the IRS is willing to work with you.

Under its expanded Fresh Start program, the tax agency is offering penalty relief to the unemployed and making installment payment plans available to more people.

The IRS is waiving failure-to-pay penalties for certain taxpayers as long as they do pay their tax bills in full by Oct. 15. This penalty relief will be available to:

  • Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 tax-filing deadline, or for
  • Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

There are earnings limits to the penalty relief. Your income must not be more than $200,000 if you file as married filing jointly or not exceed $100,000 for single or head of household taxpayers. 

This penalty relief also is restricted to taxpayers whose calendar year 2011 tax due does not exceed $50,000.

If you qualify, fill out the new Form 1127A to apply for the tax penalty relief.

In addition, the IRS has made it easier for people who owe large tax bills to get an installment agreement without having to supply the agency with a financial statement.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined installment payment plan. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.

Pay by plastic: While it's essentially trading one debt (to the IRS) for another (to the credit card company), many people opt to pay large tax bills by plastic.

Service Provider

and Telephone
Convenience Fees on
Credit Card Payments
Convenience Fees on
Debit Card Payments
WorldPay US, Inc. payUSAtax.com
1.89% $3.49
WorldPay US, Inc. ValueTaxPayment.com
2.29% $3.49
Official Payments Corp. officialpayments.com/fed
2.35% $3.95
Link2Gov Corp PAY1040.com
2.35% $3.89

Contact the service provider for up-to-date fee information. There generally is a flat fee per each debit card transaction. For credit card payments the minimum convenience fee is $3.89 for WorldPay and Link2Gov and $3.95 for Official Payments.

This can work if you're getting rewards from your credit card. But you also must be disciplined and pay off the charge card as quickly as possible or the interest charges will put you into a deeper financial hole.

The one possible positive here is that if you itemize, you can count these fees as part of your miscellaneous expenses on next year's Schedule A.

Make an offer: Finally, the IRS still allows taxpayers who will never be able to pay what they owe to apply for an Offer in Compromise. Here you make the tax collector a reasonable and legitimate payment offer.

If the IRS agrees, it will take what it can get and avoid costly and time-consuming collection efforts.

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