Article Highlights:
About 3 out of 4 American taxpayers receive a refund each year when they file their income tax returns, but there are those who for one reason or another end up owing. Of those who owe Uncle Sam many don't have the means to pay what they owe by the return due date (usually in April).
NOTE: If you live in a federally declared disaster area the due date may have been automatically extended. The extension will apply if you reside in the disaster area, and you need not be directly affected by the disaster to qualify. Check the IRS website at Tax Disaster Relief Situations for areas that have disaster filing relief extensions. Call this office to confirm you qualify and for information related to state disaster relief due date postponements.
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. In some cases, a transaction may have occurred during the year that created a large capital gain, and the taxpayer didn't adjust their withholding or estimated payments to cover the extra tax, resulting in a large tax bill at filing time. This can be a huge problem for those who are unable to pay their liability.
It is generally in your best interest to make other arrangements to obtain the funds for paying your 2023 taxes rather than be subjected to the government's penalties and interest for payments made after April 15, 2024. Here are a few options to consider.
Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
Use the equity in your home-that is, the difference between your home's value and your mortgage balance-as collateral. As the loans are secured against the equity value of your home, home equity loans offer extremely competitive interest rates-usually close to those of first mortgages. Compared with unsecured borrowing sources, such as credit cards, you'll be paying less in financing fees for the same loan amount. Unfortunately, obtaining these loans takes time, so if you anticipate that you'll need funds from such a loan to pay your taxes that are due in April, you should get the application process started right away.
Don't mistake the ability to apply for an extension of time to file your tax return as also being an extension to pay any tax liability. It is not and does not grant you an extension of time to pay. The penalties and interest on the amount due will continue to apply as of the original due date of the return.
If the taxes cannot be paid timely, and the IRS is not notified why the taxes cannot be paid, the law requires that enforcement action be taken, which could include the following:
Note: To collect delinquent tax debts, certain federal payments (vendor, OPM, SSA, federal salary, and federal employee travel) disbursed by the Department of the Treasury, Bureau of Fiscal Service (BFS)) may be subject to a levy through the Federal Payment Levy Program (FPLP).
The IRS also has what is called the "Fresh Start" initiative to offer more flexible terms in its existing Offer-in-Compromise program which, under certain circumstances allows taxpayers to settle their tax debt for reduced amounts. This enables financially distressed taxpayers to clear up their tax problems faster than in the past. While resolving tax problems might previously have taken four or five years, taxpayers may now be able to resolve their problems in as little as two years.
If you have questions about the payment options or an offer-in-compromise, please call this office for assistance. Don't just ignore your tax liability because that is the worst thing you can do.