Tax Day 2020 is rapidly approaching and a lot of taxpayers are not ready for it.
It's not just their Form 1040 filing that's an issue. They are concerned about paying any tax that's also due on this year's July 15 due date that was postponed by coronavirus precautions.
The audit defense company TaxAudit reports that more than a third — 37 percent — of the people who participated in the company's recent survey said they don't have the resources to pay any 2019 taxes they owe.
That 37 percent group is this week's By the Numbers figure.
The tiny bit of good news is that you have some options if you find on Tax Day that you can't pay all or any of your tax bill. More on that a bit later.
First, though, a look at yet another way the pandemic has created tax time chaos.
Current COVID-19 concerns: The financial crunch is due primarily to the COVID-19 economic hit they took.
The major problem, obviously, is the record high unemployment.
Millions have lost income due to pandemic-prompted company closures and layoffs. They've been forced to use whatever resources they have to make mortgage or rent payments and cover monthly bills.
Not much is left over, even after getting a COVID-19 economic relief payment, to now pay Uncle Sam the taxes they owe on money they made last year.
Future tax fears, too: And tax worries apparently won't end once Tax Day 2020 is past. Another 43 percent told TaxAudit that they are concerned about owing taxes next year.
Part of that concern is due to the tax consequences of the social safety net help.
Any unemployment benefits you obtain are taxable income. Of those who finally were able to get the government assistance this year, another 37 percent said they worry that they may owe an increased amount of taxes next filing season.
There also are tax implications for those who have other financial resources of their own.
If you opt to withdraw money from tax-deferred retirement funds, sell stock or other investments or start collecting Social Security benefits earlier than planned, you'll likely owe tax on those transactions.
More tax payment problems data: Of borrowers against their retirement accounts to make coronavirus ends meet, 30 percent worry they will owe an increased amount of taxes next year.
Twenty-eight percent of those who sold stock or liquidated other investments are concerned they, too, may owe a more in taxes next year when they file their 2020 returns.
Those various tax implications are probably why overall 61 percent who answered TaxAudit's questions said they are worried they will be pushed deeper into tax debt next year.
And while the survey did not question folks about state tax concerns, since most U.S. taxpayers live in states that collect some type of individual income tax, these state obligations do doubt add to taxpayers worries.
Most state tax deadlines for 2020 also were postponed to so are due July 15.
"COVID-19 has resulted in a financial crisis that, understandably, has taxpayers deeply concerned about being able to pay their taxes this year, despite the extended deadline," said attorney Arnold van Dyk, TaxAudit's Director of Tax Services. "Fear of falling into tax debt next year is clearly warranted."
Options when you owe: If you can't pay your federal tax bill, the main thing to do is act before the IRS forces you. You have several options, including the following five.
1. Don't ignore a tax bill. This is advice that applies this extraordinary coronavirus tax season or any year. That will only make the problem worse and lead to additional penalties and interest. Wait too long, and you'll likely face even more serious consequences, such as wage garnishment, tax liens, and more.
2. Set up payment plan. The IRS offers two options. Qualifying taxpayers can get a short-term one under which they agree to pay all their due tax in 120 days or less. If you need more time to come up with the cash, look into an installment agreement where you'll make monthly tax debt payments for up to six years. Eligibility and associated fees depend largely on the amount of tax you owe.
3. Offer to pay less. If your tax bill is really, really big and you know you'll never be able to pay it, offer to pay as much as you can. If you provide the IRS with a reasonable amount you can pay, officially known as an Offer in Compromise, you might be able to settle the debt for less than the amount you owe.
4. Consider your collectability. If your monthly expenses are more than your monthly income and you cannot afford to make a monthly tax payment, the IRS may determine that you are eligible for Currently Not Collectible, or CNC, status. You have to provide the tax agency with supporting documents before it makes this call. However, if the IRS does determine that you can't pay any of your tax debt because of financial hardship that would prevent you from meeting your basic living expenses, it will temporarily delay collection until your financial condition improves. Note that during this delay, penalties and interest continue to accrue and will be added to what you must pay when you eventually can.
5. Get professional tax help. This step is one to take at any time you feel overwhelmed by your tax responsibilities and the options you have in meeting them. A reputable tax adviser can help you chose the payment option that best fits your circumstances and satisfies the IRS.
"For taxpayers concerned about falling victim to tax debt, it's important to know your rights and seek guidance from a reputable agency to help negotiate with the IRS," said TaxAudit's van Dyk.
You also might find these items of interest:
- 7 ways to pay your tax bill
- Tax help for those who lost healthcare along with their jobs
- July 15 is Tax Day 2020, but you can get an extension by then if you need
|Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.
But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.