- Learn how the automatic 2019 filing and payment extensions may benefit you.
- Discover solutions to help you pay your taxes.
- Find out how loans might help you pay your taxes.
- Learn the pros and cons of credit card payments.
- Find out if an IRS installment agreement might be right for you.
- Learn more about using retirement funds to pay your taxes.
Although most American taxpayers receive a refund each year when they file their income tax returns, there are those who, for one reason or another, end up owing. However, lots end up owing on April 15th and many don’t have the means to pay what they owe.
In an unprecedented move to dampen the economic hardship of the COVID-19 virus, the IRS has extended the tax payment due date. It has given taxpayers until July 15th to file their 2019 returns and pay their 2019 tax liability–without having to file a request for extension of time. The due date has also been put off to July 15 for some 2020 estimated tax payments. No penalties or interest will apply during the extended filing period.
Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual failed to make adequate estimated tax payments during the year. This can be a huge problem for those who are unable to pay their liability.
Visit Fiducial’s Coronavirus Update Center to find federal and state tax filing and payment deadlines as well as emergency relief services.
What to Do if You Are Unable to Pay Your Taxes
If you are currently unable to pay the tax you owe, this extension of the payment due date gives you additional time to make arrangements. It is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than be subjected to the government’s penalties and interest for payments made after July 15, 2020. Here are a few options to consider.
Obtaining a loan from a relative or friend if you are unable to pay your taxes may be the best bet. This type of loan is generally the least costly in terms of interest.
Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the taxes due and pay the higher credit card interest rates.
Short-Term Payment Plan
If you are unable to fully pay your taxes owed within 120 days, you can apply for a short-term payment plan online at the IRS web site. You won’t be charged a set-up fee, but you will still have to pay penalties and interest until the balance owed is fully paid.
If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement. Under this agreement, you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current.
If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition. They will also need to provide the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance of $50,000 or less to take advantage of the streamlined option. So, if you are unable to pay your taxes, this may be an option for you, though it does have its drawbacks.
Tap a Retirement Account
This is possibly the worst option for obtaining funds if you are unable to pay your taxes. You are jeopardizing your retirement and the distributions are generally taxable at your highest bracket. This adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more. If you have questions about the payment extension, please call this office for assistance. Don’t just ignore your tax liability–that is the worst thing you can do. Need help finding the best course of action to pay your taxes? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!