Will the IRS Let You Make Payments?
The Internal Revenue Service is the collector of revenue for the federal government, enforcing the tax regulations and providing guidance to taxpayers. The IRS expects you to file a tax return and pay any taxes you owe, but it has alternatives in place if you cannot pay. File tax returns on time even if you don't have the funds to pay your taxes.
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Function
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The IRS requires individuals to make payment of taxes owed, either with filing of Form 1040 or in advance. Employers take anticipated tax obligations from your paycheck and send them to the IRS on a regular basis. This includes federal income taxes along with Social Security and Medicare. The amount of your tax withholding depends on your signed declaration on the Form W-4 for the number of dependents you claim. If you are self-employed, you are required to file quarterly tax deposits for taxes you will owe, or if your income is small, you may pay with your Form 1040 filing.
Significance
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Failing to set aside sufficient funds for payment of federal income taxes will place you at the crossroads of a difficult decision April 15. You could file a tax return without payment, or you could wait to file a tax return until you have the tax money. These are not wise choices as there is a failure-to-pay penalty imposed by the IRS.
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Considerations
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The IRS suggests that those who cannot pay in full should pay whatever they can, since the failure-to-pay penalty and the interest calculations are on the total unpaid taxes only. You may charge your taxes to your credit card and avoid the penalties.
Misconceptions
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You cannot file for an extension of your tax return and expect not to pay taxes until the extension runs out in six months. There is no extension to pay, and taxes are due April 15, even if you are not prepared to file your tax return.
Alternatives
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The IRS has an Online Payment Agreement option for monthly installments if you cannot obtain a loan elsewhere. The terms of the OPA are not usually as favorable as those from a bank are, and the OPA is only available to taxpayers who owe less than $25,000. Request Form 9465 or apply online. Another alternative is to make payments with the Form 1040-V or payment voucher using check or money order.
Request an offer in compromise if your taxes are significant. According to the IRS, employees have leeway in making this agreement between the IRS and the taxpayer for less than the full amount owed. The IRS employees base decisions on your present income, and if your income improves significantly, your payment may be increased.
Warning
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Plan for payment of taxes for next year at the same time you are making installment payments for last year, or you will never get ahead of the IRS.
The OPA in 2010 cost $105 for the set-up fee, or $52 if you have the payments drafted from your bank account. You will still owe the interest and penalties accruing each month, so use this as a method of last resort.
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