By now, everyone knows that a lot of taxpayers are getting the worst news ever at filing time. They owe the U.S. Treasury money.
We can debate the reasons for the unexpected tax bills ad infinitum.
Withholding tables were rejiggered in 2018 following the changes in the Tax Cuts and Jobs Act (TCJA). Itemized deductions and exemptions were reduced or eliminated by that tax legislation. Taxpayers didn't adjust their withholding to get their paycheck amounts more in line with the new law.
The bottom line is that more than the usual number of filers this year are going to have to come up with money to pay their taxes when they file.
Many of them have never been in this predicament before.
To help these folks out, the Internal Revenue Service has some suggestions.
Make a lump-sum payment: If you're tax bill isn't too big and you can cover what you owe in one payment, the IRS offers a variety of payment options, many of them of the electronic variety.
- IRS Direct Pay — Here you can make a tax payment directly from a checking or savings account. The service is free and doesn't require any preregistration.
- Electronic Federal Tax Payment System (EFTPS) — With this granddaddy of electronic tax payment, you can pay your tax bill by phone or online. This service also is free, but does you need to set up an account first.
- Debit or credit card payment — Stop me if you've heard this before, but this service is free. However, the card processing company may charge a fee. Fees vary by company.
- Check or money order — All y'all old school payers can send in actual paper payments, aka a check or money order. Make it payable to the United States Treasury (or U.S. Treasury), not the Internal Revenue Service (or IRS). You also can hand-deliver the payment in person if you live near a Taxpayer Assistance Center.
- Cash payments — Say it with cash is my personal mantra, except when it comes to taxes. But some folks like to operate in literal dollars. If you're one of them, you can make cash tax payments can be made at some IRS offices or at participating PayNearMe locations. Some restrictions apply. Never send cash, to the IRS or any other vendor, through the mail.
Regardless of what method you use to pay, make sure you get it to the IRS (or postmarked if mailing) by the April deadline(s).
Pay in installments: If, however, your tax bill is too big for you to pay in one fell swoop, the IRS also offers some ways to pay over time.
- Online Payment Agreement — Individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in payroll tax and have filed all tax returns may qualify for an Online Payment Agreement. Most taxpayers qualify for this option and in most cases an agreement can be set up quickly.
- Installment Agreement — Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. Even taxpayers who don't qualify for a payment agreement may still pay by installment. Certain fees apply.
- Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer's financial condition improves.
- Offer in Compromise — Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise, or OIC. To help determine eligibility, use the Offer in Compromise Pre-Qualifier
Remember, too, that you don't have to deal only with the IRS to set up a payment plan. You also should look into getting a loan from a private lender to pay the amount due. In many cases, the loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law in connection with its installment payment arrangements.
Adjust your withholding: Finally, so that you won't find yourself owing, or at least not so much, this time next year, adjusted your payroll withholding.
The IRS has a new Form W-4 you can use to ensure that the amount of income tax taken from your paychecks will match up properly with all the TCJA changes.
When you file your 2019 tax return in 2020, you'll be glad you did.
You also might find these items of interest:
- 6 reasons to file your taxes early
- 6 reasons to wait to file your taxes
- IRS offers tax penalty relief to some who didn't have enough withheld