Tax Day is rapidly approaching. It’s true that you still have until April 18 this year, but you might be surprised at how fast time flies. Especially when you don’t want it to. One of the reasons you might not want time to fly is that you know you owe money on your taxes. This knowledge can be especially distressing if you know that you will have a hard time making your payments. In this economy, the fact that you have to pay taxes on unemployment income might be a bit of a problem. Additionally, you might not have withheld enough from your paycheck for taxes. Whatever the reason, you might find that you owe the IRS a tax bill that you can’t afford. So, whay can you do?
Photo by David Reber via Flickr
IRS Solution: Installment Loan
The IRS does have a solution for you. It is possible to apply for an installment agreement so that you are not overly burdened by paying taxes. The IRS generally allows you to pay in installments if you owe less than $25,000, and don’t have a lot of tax issues from your past. You can send in a Form 9465, or you can apply for an installment loan online. This is an easy way to get things set up. You can let the IRS know how much you can afford to pay each month (the IRS has a helpful payment estimator that you can use to help you figure it out), and the IRS can decide whether or not to accept your agreement.
You should realize, though, that this is a loan. The IRS considers that you are borrowing the money when you sign up for an installment agreement. As a result, you will need to pay interest. However, the interest rate on an IRS installment loan is usually much lower than what you would get from a credit card issuer. You will also have to pay a fee. Before you put your taxes owed on the credit card, it is worth running a comparison to see if you are better off borrowing from the IRS.
You can choose whether to make a monthly payment on your own, or whether you want a direct debit from your bank account. It is also possible to choose to have your installment amount taken out of your paycheck. These automatic options can make it easier and ensure that your payments are made.
What If You Owe More Than $25,000?
You can only apply for the online installment agreement if you owe $25,000 or less in combined taxes, penalties and interest. You have to realize that the IRS starts tacking on interest as soon as you are late, and there are penalties charged. (Indeed, the failure to file a tax return can come with a heftier penalty than failure to pay taxes.)
If what you owe to the IRS is more than $25,000, you can still apply for an installment agreement, but you won’t be able to fill out the online form. Instead, you will have to take care of things in writing. You will need to send a Form 433F along with your Form 9465. It can help to call the number listed on your tax bill if you want to speak with someone who can help you work things out.
It’s good to know that you do have an option when you owe money in taxes, but can’t pay.
Alternatively, you can borrow money from credit unions, lending exchanges, or peer-to-peer lenders if you unable to make IRS payment plan works for you.
Miranda is a professional personal finance journalist. She is a contributor for several personal finance web sites. Her work has been mentioned in and linked to from, USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications. She also has her own blog at Miranda Marquit.