Advertisement
taxes

What to Do When You Can't Pay Your Taxes

An IRS installment plan can be more affordable than paying with plastic.

Most taxpayers probably think asking the IRS for a loan is about as smart as going to a neighborhood loan shark. But, think again.

If you, or your kids, find yourself in the unenviable position of being unable to pay what owe with your 2014 return, going on the government’s installment plan might be the most economical solution.

Advertisement - Article continues below

First of all, if you don’t have the cash to cover your bill, don’t even think that simply not filing is a solution. There are tough penalties for failing to file.

Of course, you could charge what you owe to a credit card. But that can be expensive. Let’s say you owe $10,000. One of the firm’s that handles credit card payments for the government would charge you a $235 “convenience fee” to do the deal. And if your card charges 19% interest, and you pay off that $10,000 over two years, you’ll also pay about $2,100 in interest. The cost of paying with plastic: $2,335.

Now, consider setting up an installment plan with the IRS. You do that by filing Form 9465. And you get to propose how much you can afford to pay each month. If you owe less than $50,000 and can pay it off in under six years, approval of your plan is almost automatic.

Advertisement - Article continues below

The IRS charges $120 to set things up, or just $52 if you agree to have your payments electronically debited from your bank account or paycheck. Of course you’ll owe interest and penalties, too. But the IRS interest rate is now just 3%. And the penalty for late payment drops for one-half a percent a month to one quarter of a percent if you’re on an installment plan.

If you pay off a $10,000 tax debt over two years under the installment plan, it will cost around $700 in interest and penalties--far less than the cost of using your credit card.

If an installment plan is for you, file Form 9465 with your return. You can also apply online if you owe less than $50,000. Within 30 days or so, you’ll hear from the IRS on how to proceed.

For more advice on preparing your federal tax return see our Special Report on Tax Prep & Filing.

Advertisement
Advertisement

Most Popular

Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020

Recommended

The Annuity With a Tax-Planning Twist
Financial Planning

The Annuity With a Tax-Planning Twist

A qualified life annuity contract helps retirees with guaranteed payments to last their entire lives.
September 21, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Most-Overlooked Tax Breaks for the Newly Divorced
tax deductions

Most-Overlooked Tax Breaks for the Newly Divorced

Filing taxes after a divorce can add yet another problem to an already long list of challenges. But here are some tips to make your return to single l…
September 18, 2020
What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
September 17, 2020