What to Expect If You Owe Money to the IRS

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Often we find ourselves in situations that we never dreamed of – like owing the IRS a considerable amount of money. Maybe you earned a lot more than you expected, perhaps you had a filing status change that dramatically changed your tax rate, or maybe there was a change to your deductions. It doesn’t matter, you’ve found yourself in the situation – what should you expect?

While the majority of Americans get a tax refund from the Internal Revenue Service each year, there are many taxpayers who owe and some who can’t pay the tax all at once. The IRS has a number of ways for people to pay their tax bill.

The IRS has an effort to help struggling taxpayers get a fresh start with their tax liabilities. The goal of this effort is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden. Specifically, the IRS has policies and programs to help taxpayers pay back taxes and avoid tax liens.

Here are ten tips for taxpayers who owe money to the IRS.

1. Tax bill payments. If you get a bill for late taxes, you are expected to promptly pay the tax owed including any penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.
2. Additional time to pay. Based upon your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement application or by calling 800-829-1040.
3. Credit card payments. You can pay your bill with a credit card. The interest rate on a credit card may be lower than the combination of interest and penalties imposed by the Internal Revenue Service. To pay by credit card go to the IRS page Pay your taxes by debit or credit card. There are several options to choose from for this type of payment.
4. Electronic Funds Transfer. You can pay the balance by electronic funds transfer, check, money order, cashier’s check or cash. To pay using electronic funds transfer, use the Electronic Federal Tax Payment System by either calling 800-555-4477 or using the online access at www.eftps.gov.
5. Installment Agreement. You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS to pay the amount due in monthly installment payments. You must first file all required returns and be current with estimated tax payments.
6. Online Payment Agreement. If you owe $25,000 or less in combined tax, penalties and interest, you can request an installment agreement using the Online Payment Agreement application.
7. Form 9465. You can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope you received from the IRS. The IRS will inform you (usually within 30 days) whether your request is approved, denied, or if additional information is needed.
8. Collection Information Statement. You may still qualify for an installment agreement if you owe more than $25,000, but you are required to complete a Form 433F, Collection Information Statement, before the IRS will consider an installment agreement.
9. User fees. If an installment agreement lasting more than 180 days is approved, a one-time user fee will be charged. The user fee for a new agreement ranges from $22 to $107 depending on the circumstances of your agreement. For eligible individuals with lower incomes, the fee can be waived or reduced to $43.
10. Check withholding. Taxpayers who have a balance due may want to consider changing their W4, Employee’s Withholding Allowance Certificate, with their employer. A withholding calculator at www.irs.gov can help taxpayers determine amount that should be withheld.

For more information about the Fresh Start initiative, installment agreements and other payment options visit www.irs.gov. IRS Publications 594, The IRS Collections Process, and 966, Electronic Choices to Pay all Your Federal Taxes, also provide additional information regarding your payment options.  The publications and Form 9465 can be obtained from www.irs.gov or by calling 800-TAX-FORM (800-829-3676).