Did you know that over $1 trillion is paid in individual income taxes each year?
Tax season can be a stressful time, especially if you’re not sure what to do when paying taxes.
You may be wondering if you even have to file a tax return this year. And if you do have to file, will you need to pay the full amount right away?
Well, don’t worry. Keep reading because our guide will help take the guesswork out of tax season and show you the best way to pay your taxes based on your situation.
We’ll also answer the age-old question, “do you have to pay your taxes when you file?”
Table of Contents
What Are Your Payment Options When Filing Taxes?
If you’re having trouble affording your income tax bill when filing your tax bill, the IRS offers a few payment options. You can pay your taxes in full, make partial payments, or set up an installment plan.
Paying in Full
If you can afford to pay your taxes in full, you should do so. This is the simplest way to take care of your tax bill and avoid any penalties or interest charges. You can pay online, by mail, or over the phone.
Partial Payments
If you can’t afford to pay your taxes in full, you can make partial payments. The IRS will accept partial payments as long as you pay at least the amount of your tax liability. Partial payments will not reduce or eliminate any penalties or interest charges you may owe.
Installment Plans
If you’re unable to pay your taxes in full, you may be able to set up an installment plan with the IRS. There are two types of installment plans available: short-term and long-term.
Short-term installment plans are for taxpayers who can pay off their tax debt within 120 days.
Long-term installment plans are for taxpayers who need more time to pay off their tax debt, and they extend the repayment period to 72 months. Both types of installment plans come with setup fees and interest charges.
4 Steps to Pay Off Your Income Tax Bill
Now that you know the options open to you. Let’s look at this 4 step plan of what to do if you can’t pay taxes:
1. How Much Do I Owe the IRS?
The first step is to find out how much you owe. You can do this by looking at your most recent tax return. If you’re unsure of the amount, you can also contact the IRS directly.
2. Determine Your Ability to Pay
The second step is to take a good look at your finances and determine how much you can realistically afford to pay. Keep in mind that you’ll need to make payments on time and in full to avoid any penalties or interest charges.
3. Choose a Payment Option
Once you know how much you can afford to pay, it’s time to choose a payment option. If you can pay your taxes in full, that’s the best option. If not, you can make partial payments or set up an installment plan.
Alternatively, you could also set up a tax lien.
4. Make Your Payment
The final step is to make your payment. You can do this online, by mail, or over the phone. If you choose to make a partial payment or set up an installment plan, you’ll need to fill out some paperwork and send it to the IRS.
Minimize Penalties and Interest
Large tax bills are more difficult if you need to pay penalties and interest on top of the original tax bill. Luckily, you can minimize these charges in three ways:
Exceptions to Underpayment of Tax Penalties
The good news is that there are a few exceptions to the underpayment of tax penalties. If any of the following apply to you, you won’t be charged a penalty:
- You had no tax liability for the previous year
- You’re a victim of identity theft
- You received a disaster designation
- You’re experiencing financial difficulties
- You have an installment agreement with the IRS
You can also reduce your penalties and interest using the annualized income method or the short-term exception method.
The annualized income method allows you to avoid penalties if your tax liability is less than $1,000 and you’ve paid at least 90% of your tax liability through withholding or estimated tax payments.
The short-term exception method applies if you pay your taxes within 30 days of the due date and you owe less than $100,000.
Ask for an Abatement of Penalties
The IRS often reduces or eliminates penalties if you can show that you had a legitimate reason for not paying your taxes on time. Some common reasons for abatement include:
- You suffered from a natural disaster
- You had an illness or death in the family
- You’re retired and on a fixed income
- You’re experiencing financial difficulties
So, if you can’t pay your taxes on time, don’t panic! There are a variety of payment options available to you, and you may even be able to reduce or eliminate any penalties and interest charges.
Just be sure to act quickly and choose the option that best suits your individual needs.
Appealing an IRS Decision
If you don’t agree with a decision made by the IRS, you have the right to appeal that decision. The appeals process is informal and usually takes place over the phone.
You can also request a face-to-face meeting. If you’re not satisfied with the outcome of your appeal, you can take your case to court.
Pay as Quickly as Possible
If you owe tax with penalties and interest, don’t wait to pay. The sooner you pay, the less you’ll owe in interest and penalties.
If you can’t afford to pay your taxes in full, make partial payments as soon as possible. The IRS offers a payment plan called the StreamlinedInstallment Agreement, which allows you to make monthly payments over 36 months.
What If I Can’t Pay My Taxes?
If you can’t pay your taxes, don’t panic. The IRS offers a variety of payment options to help you get back on track.
You can file form 9456, Installment Agreement Request, to set up an installment plan. This will allow you to pay your taxes over some time, usually 120 days.
The IRS must allow you to make payments if:
- You can’t pay your taxes in full
- You’re not in tax collection
- Your request is made before the IRS files a Notice of Federal Tax Lien
If you don’t qualify for an installment plan, you may be able to make partial payments. To do this, you’ll need to fill out form 9465, Installment Agreement Request.
The IRS will review your request and determine if you’re eligible for a payment plan. If so, they’ll send you a notice with the terms of the agreement.
If you’re still having trouble paying your taxes, there are other options available. You may be able to postpone your tax liability through what’s called an Offer in Compromise. This allows you to settle your tax debt for less than what you owe. To qualify, you’ll need to prove that you can’t pay your taxes and can’t pay in the future.
The IRS may also be willing to temporarily delay collection action if you’re experiencing financial hardship. This means they won’t take any action to collect the taxes you owe, such as garnishing your wages or seizing your property.
Offer in Compromise
You’ve probably heard of the Offer in Compromise program, also known as an OIC. This program offered by the IRS allows you to settle your tax debt for less than what you owe.
To qualify for an OIC, you must prove that you can’t pay your taxes and can’t pay in the future. You’ll also need to submit a financial statement and provide proof of your income, expenses, and assets.
If you’re approved for an OIC, you’ll need to make a lump-sum payment or enter into an installment agreement. The IRS will review your offer and determine if it’s acceptable. If it’s not, they may counter with their offer.
If you can’t reach an agreement with the IRS, you can have your case heard by an independent appeals officer.
How to Avoid Interest on Your Taxes Owed
Interest accrues on any unpaid tax bill from the date your return was due until the date you pay the bill in full. The current interest rate is set quarterly and is equal to the federal short-term rate plus 3%. To avoid being charged interest, you should pay your taxes as soon as possible.
What Not to Do
Now that you know what to do when it comes to paying your taxes, let’s look at what not to do. Let’s dive in now:
Say No to Credit Cards
Avoid putting your tax bill on a credit card. While it may be tempting to pay your taxes with a credit card, it’s not a good idea. You’ll be charged interest and fees, which will only add to your tax bill.
Don’t Count On Getting a Refund
If you’re counting on getting a refund to pay your taxes, you’re in for a rude awakening. The IRS doesn’t give refunds to people who owe taxes. So, if you’re expecting a refund and you owe taxes, you’ll need to find another way to pay your bill.
Don’t Ignore the Problem
Facing up to a tax debt can be daunting, but it’s important to remember that ignoring the problem will only make it worse. The sooner you take action, the fewer penalties and interest you’ll accrue.
There are several options available to help you pay off your debt, and a tax professional can help you choose the best course of action. Don’t wait any longer – the longer you delay, the more difficult it will be to get back on track.
Don’t Take Money Out of Your Retirement Accounts to Pay Your Income Tax Bill
If you’re struggling to pay your taxes, raiding your retirement account might seem like a quick and easy solution. However, this is a highly unadvised course of action.
Not only will you be hit with taxes and penalties on the withdrawn amount, but you’ll also lose out on years of growth and compound interest.
In addition, tapping into your retirement savings can trigger an early withdrawal penalty if you’re not yet retirement age. As a result, you could end up owing even more money than you started with.
If you’re struggling to pay your taxes, it’s important to explore all of your options before turning to your retirement account.
With a little bit of planning and diligence, you can find a way to get through tax season without putting your future at risk.
Don’t Panic!
If you’re having trouble paying your taxes, the worst thing you can do is panic. Take a deep breath and remember that there are options available to help you.
So, Do You Have to Pay Your Taxes When You File?
Paying your taxes is not optional. If you can’t pay your taxes in full, there are options available to help you. You can enter into an installment agreement or make partial payments.
You may also be eligible for an Offer in Compromise or have your case heard by an independent appeals officer. Whatever you do, don’t ignore the problem or raid your retirement accounts to pay your tax bill.
No one likes to pay their taxes, but they are a necessary part of life. If you’re having trouble affording your income tax bill, don’t worry – there are options available to you.
Check out our blog for more articles like this one that will help explain the different ways you can pay your taxes and get some relief.
And please share this article with anyone you know who is wondering, “do you have to pay your taxes when you file?”
