Tax Debt Help - Do You Owe the IRS?

From direct debits to installment plans, there are a variety of ways to pay the IRS should you owe taxes this year.

Credit Card

American Express^®, MasterCard^®, Visa^® or Discover^® can be used to charge taxes due by calling either Link2Gov Inc. at 888-PAY1040 (or using the Web at www.pay1040.com) or Official Payments Inc. at 800-2PAY-TAX (or using the Web at www.officalpayments.com). A convenience fee is applied at the time of payment.

Direct Debit

If you're e-filing your return, direct debit may be the solution. The IRS will debit a checking or savings account for your balance due. The plus side to direct debit is that you can specify the date of this debit, which means you can file early in February and still not pay until April 15.

Personal Check or Money Order

This is the traditional method of paying when mailing a paper return. Be sure to write your social security number in the memo field and make your check payable to the U.S. Treasury.

Installment Agreement

This method of payment has to be approved by the IRS. To request an agreement, file Form 9465. Following approval, the IRS agrees to let you make monthly payments for your debt instead of payment in full. In return, you agree to make timely monthly payments and pay all future tax liabilities. This means you must plan ahead. You must have adequate future withholdings or estimated tax payments so that future tax liabilities are paid in full when you file your returns. The IRS must let you use an installment agreement if you meet the following conditions:

• Your total liability does not exceed $10,000.
• You've filed all required returns on time and haven't had an installment plan in the past 5 years.
• The IRS determines you can't pay the tax in full when it's due and you furnish the IRS with all the information needed to make this determination.
• You agree to pay the bill within 3 years.

Interest, late payment penalties and a processing fee apply. The IRS processing fee is $105 for new agreements, $52 for new direct debit agreements and $45 for restructured or reinstated agreements. However, if you have an income at or below established poverty levels, you may qualify to pay a reduced fee of $43 for new installment agreements. Other requirements may also apply. See if you qualify for the reduced installment agreement user fee. To limit the amount of penalties and interest, pay as much of your tax bill as possible with your return. The IRS recommends considering other less costly alternatives, such as a bank loan, before considering an installment agreement.

Online Payment Agreement

The IRS has an Online Payment Agreement (OPA) application, allowing taxpayers to apply for installment agreements online. Now you can set up an agreement and arrange for payment without ever having to call or write the IRS. You must have already filed all required tax returns to use the OPA application. When you apply online, 3 payment options are available:

• pay in full
• short-term extension
• monthly payment plan

Choosing a Payment Method

When considering which payment method best suits your situation, remember to carefully consider the interest rate on a credit card. An IRS installment agreement charges 7% plus a late penalty of one-half percent (one-quarter percent for taxpayers who filed returns on time). Compare this to credit card rates of possibly 18% or higher.

If you know you’ll have a balance due this year, it pays to know your options. It will save you money, worries and penalties.