Ways to Pay Back Taxes if you live in the US…

It’s tax season, and you owe the IRS more than you can afford. Don’t panic – you’re not alone. In 2009, an IRS spokesperson estimated that 8.2 million Americans owed over $83 billion in back taxes, penalties and interest. Falling behind on your taxes is a common mistake, and the government has created programs to help you get back on track. If you need pay back outstanding taxes, here are four ways you can do it:

1. File a Short-term Extension

If you owe the IRS, you might be able to get an extra 120 days to pay off your debt. Filing a short-term extension is a good option for those who can’t pay their taxes on the given due date—but expect to have the cash soon. There is no extra fee to file an extension, but you will accrue interest on your outstanding tax payment. To ask for an extension, begin with a call to the IRS at 1-800-829-1040 to discuss your cash flow situation. The agent will advise you to file Form 4868 to submit via mail. There’s no penalty to pay back your taxes via an extension, because by filing the form you are agreeing to pay them in full. Remember to always file your taxes on time regardless of your financial situation, as the failure-to-file penalty is much heftier than the failure-to-pay.

2. Ask for an Abatement of Penalties

If it’s your first time failing to pay your taxes in full, the IRS might grant you a waiver. The first-time penalty abatement (FTA) grants relief to taxpayers from failure-to-file, failure-to-pay, and failure-to-deposit penalties if certain criteria are met. Everyone’s entitled to one mistake, but you’ll need a clean compliance history to point to. You’ll also need to supply a reasonable cause for why you were unable to pay your taxes on time. The circumstance must be something that was out of your control, such as unavoidable absence, serious illness, or death. You can request an FTA by mail or phone. If you call over the phone, the IRS agent should be able to pull up your account, determine if the FTA criteria are met, and apply the waiver if eligible. Call wait times can be pretty lengthy, which makes mailing an FTA a favorable option. Be sure to include your reason in your letter, as well as all other relevant information (identification number, tax year/period, tax form, penalty type and amount, etc.)

3. Request an Installment Agreement

Taxpayers who owe $50,000 and need more time to pay can request a short-term installment plan from the IRS. When you enter into an installment agreement, you are required to pay your liabilities (including penalties and interest) until they are paid in full on the monthly due date. To request installments on your back taxes, you or your tax practitioner will need to file Form 433D and fill in the required information. You must pay a user fee to set up the installment agreement, which will be deducted from your first payment. Keep in mind that if you default, you’ll have to pay a reinstatement fee if the IRS agrees to reinstate your plan.

4. Negotiate Your Settlement

If you owe a significant amount of back taxes, you can consider negotiating your settlement with an Offer in Compromise. This offer is best for those who never expect to be able to pay their outstanding debt in full. Before the IRS will agree to settle for less, they’ll need to make sure you’re qualified and current with all payment and filing requirements. Step-by-step instructions are included in Form 656-B, and to apply will require a $186 application fee. If you meet the Low Income Certification guidelines, you do not have to send the application fee or the initial payment, and you will not need to make monthly instalments during the evaluation of your offer. When considering you’re offer, the IRS will examine your income, expenses, asset equity and ability to pay. If your offer is accepted, your initial payment will vary based on your chosen option. You can either make periodic payments until the balance is settled, or submit 20% of your balance in lump sum cash along with your application. Any remaining balance due on the offer is paid in five or fewer payments.

Content provided to TheEmployable and specific to the US