You Can’t Hide From the IRS
But some unemployed taxpayers may catch a break under the IRS’s new, more flexible program to settle tax debts for less than owed.
Times are tough all over, especially for millions of Americans who are unemployed or facing other financial difficulties triggered by one of the worst recessions in memory. With the deadline for filing your 2009 tax return fast approaching, it may be harder than usual this year to find the cash to pay Uncle Sam.
Pay what you can. If you owe taxes and can’t cover the whole bill, pay as much as you can when you file your return. That will reduce the penalties and interest that will continue to mount up until the balance is paid in full. (No penalties will be applied if you’ve paid at least 90% of the total tax bill by the April 15 deadlines, but interest will still accrue.)
Then wait for the IRS to send you a bill for the balance. That should give you some time to come up with the cash. If you still can't afford to pay the full balance, pay what you can to buy yourself an additional month or two until another bill arrives.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
File an extension. Or, if you act by April 15, you can file for an extension by using Form 4868 (electronically or by mail) to delay your tax-filing deadline by six months, until October 15. But an extension doesn't change the deadline for paying your taxes. You'll still incur interest charges and start racking up late-payment penalties of 0.5% a month on the unpaid amount, up to 25% of the balance, plus interest.
The installment plan. If you can't pay your taxes, contact the IRS at 800-829-1040 to discuss your payment options. You may be able to set up an installment plan if your tax debt is $25,000 or less and you are able to pay your bill within five years. File Form 9465, Installment Agreement Request, to set up an agreement. If your request is approved, the IRS will charge a set-up fee of $105 or $52 if you agree to make payments through direct debits from your bank account.
Cut a deal. In an extreme case, you may be able to file an Offer in Compromise and settle your tax debt for far less than you owe, if you can prove you don't have the means to pay and it is very unlikely that you ever will.
And believe it or not, the nation’s top tax collector has a heart. “The IRS wants to do everything it can to help people who have lost their job or face financial strain,” says IRS Commissioner Doug Shulman. “We continue to make adjustments to key programs and expand the ways for people to get help.”
IRS employees now have additional flexibility when considering Offers in Compromise from taxpayers facing economic troubles, including recent unemployment. Specifically, IRS employees will be permitted to take into account a taxpayer’s current income and potential for future income when negotiating an Offer in Compromise. Normally, offers are based on a taxpayer’s past earnings.
And, the IRS is working with state departments of revenue to help taxpayers, particularly the unemployed, who are having problems paying their taxes. It has also set up the Tax Center to Assist Unemployed Taxpayers with links to information on tax assistance and relief for struggling taxpayers.
Bottom line: If you can't pay your taxes, denial and delay only make a bad situation worse. Ignore it and you could eventually face some nasty collection procedures in which the IRS imposes a levy on your wages or bank accounts, or places a federal tax lien against your property.
-
'The 'Mamdani Effect' in New York: Can the City Afford a Millionaire Tax?State Tax Will higher income taxes drive the wealthy to flee New York in 2026?
-
The November CPI Report Is Out. Here's What It Means for Rising PricesThe November CPI report came in lighter than expected, but the delayed data give an incomplete picture of inflation, say economists.
-
Online Banks Still Lead on Rates, But Is Switching Worth it Now?As interest rates trend down, online banks keep an edge on yields, but service, access and flexibility still matter. Here’s how the trade-offs stack up.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
