IRS Payment plans: Can you qualify if you can’t pay your taxes?

Reduce IRS penalties and interest with a payment plan / Freepik

Filing your tax return on time is crucial, even if you can’t pay the full amount owed. The IRS emphasizes the importance of submitting your return by the April 15 deadline to avoid the late filing penalty, which is typically 5% per month on the unpaid balance. Filing on time can significantly reduce the financial burden, as it prevents additional penalties from accruing.

Consequences of Late Tax Payments

Failing to pay your taxes by the deadline can lead to severe financial consequences. The IRS imposes a 7% annual interest rate, compounded daily, on unpaid taxes. Additionally, a 0.5% monthly penalty is applied to the outstanding balance. These charges can quickly add up, making it essential to pay as much as possible by the deadline to minimize these costs.

IRS Payment Plans

The IRS offers several payment plans to assist taxpayers who cannot pay their full tax bill. These plans provide flexibility and help avoid the harsh penalties associated with late payments. Taxpayers can apply for these plans online, making the process straightforward and accessible.

Short-Term Payment Plan:

Long-Term Payment Plan:

Additional payment options

For those who do not qualify for standard payment plans, the IRS offers other options:

Offer in Compromise: This option allows some taxpayers to settle their tax debt for less than the full amount owed. Eligibility can be checked using the IRS’s Offer in Compromise Pre-Qualifier tool.

Temporary Collection Delay: Taxpayers facing financial hardship can request a temporary delay in collection. However, interest and penalties will continue to accrue until the debt is paid in full.

It’s important to note that filing for an extension only provides more time to submit your tax return, not to pay your taxes. Interest and penalties will still apply to any unpaid balance after the original deadline. Therefore, paying as much as possible by April 15 is advisable to reduce these additional costs.

Taxpayers should be aware of scams. The IRS will not contact you via phone, text, or social media to demand immediate payment. Official communication is typically through mail, providing details on what you owe and how to dispute or appeal the amount. If unsure about a tax bill, taxpayers can verify their status using their Online Account on IRS.gov.