It may so happen that an individual has a significant amount of taxes due to the IRS (Internal Revenue Service). However, they may not be able to pay it off. It can be because of some reason. In such cases, they may become concerned and think that a plausible solution is not filing the owed taxes. In other instances, the faulty taxpayers may leave the payment problem aside. They may do so in the hope that the IRS will forget about it.
However, such wishful never comes true. The IRS keeps a throughout lookout for all due tax payments and implements penalties when the appropriate procedures get ignored. In general cases, the consequences consist of:
- A penalty of 4.5% every month can get imposed on the remaining amount owed to the IRS. It gets applied for non-filing of the due taxes. The rate may increase to a maximum of about 25% of the owed money.
- A penalty of 0.5% every month can get imposed on the remaining amount owed to the IRS. It gets applied for non-payment of the due taxes. The rate may increase to a maximum of about 25% of the owed money.
In worst cases, non-payment and non-filing can compel the government to acquire the taxpayer’s assets and properties. The latter may also face jail time.
Nevertheless, it does not mean that the IRS does not offer a way out from the issue of owing more taxes than an individual can pay. The organization provides various options that the taxpayers can opt for to pay their due amounts. These choices allow them to do so comfortably.
Let us discuss a few of these options in this article.
The IRS provides choices to the taxpayers for long and short-term payment plans. Both offer and allocate extra days that an individual can use to pay off the taxes.
The long-term payment plan can give an extra time. It may extend up to six years (72 months) to the taxpayers. On the other, the short-term ones can provide an additional 120 days. However, these options cannot remove the accumulating interest associated with the due taxes. The individual has to pay back that amount irrespective of whether they opt for the payment plans.
A taxpayer needs to follow a few specifications to qualify for the payment plans. The requirements consist of the following:
- Firstly, the individuals have to file their taxes. Additionally, they have to be up-to-date with all their tax returns related to the previous year.
- The extension they receive with the plan would get based on their household income. Hence, the mentioned earnings have to be sufficient.
- If the taxpayer ceases payment, the IRS has the authority to implement a lien on the individual’s property. It would make it difficult to get an appropriate loan rate.
- An individual is eligible for the short-term payment plan if their owed amount is $100,000 or even less. It should include all their penalties, interests, and taxes.
- An individual is eligible for the long-term payment plan if they owe tax of $50,000 or even less. It should include all their penalties, interests, and taxes.
Offer in Compromise (OIC)
Another solution for an individual who owes more taxes than they can pay is an Offer in Compromise (OIC). It is an agreement or contract between the taxpayer and the IRS. It allows the former to pay less than the owed sum or entire tax liability. They can do so before the expiration or end of the due amount collection period. It comes in handy when the taxpayer cannot pay back the due money without it resulting in a financial crisis.
OIC comes with an application fee of $205. It does not apply if an individual can meet the guidelines stated for low-income. The cost may get waived, reimbursed, or reduced in such instances. However, OIC is not an option for those facing a bankruptcy proceeding.
Currently Not Collectible (CNC)
Currently Not Collectible (CNC) is a status in IRS. It gets used to describe an individual’s inability to pay due to a case of foreseeable future. In such scenarios, the organization can approve a particular solution for the taxpayer. It would temporarily delay the individual’s tax collection for a definite period. It would continue until the person’s financial condition experiences an improvement and stabilization.
A taxpayer must provide appropriate proof of their financial status to opt for a CNC. It would include all their expenses, assets, and monthly income.
A taxpayer can charge their due amount of tax liability to their credit card to pay it off. They can do so at a convenience fee of approximately 2%. Other than that, they can also opt for a credit union or bank loan for debt consolidation.
These options allow an individual to pay off their owed taxes. However, they move it to a relatively expensive source. Thus, the situation may become if the taxpayer does not own a credit card having an exceedingly low percentage rate (APR). On top of that, these solutions may work if an individual can secure and use a personal loan. Nonetheless, they should be able to do so at an exceptionally low-interest rate. It ensures that the taxpayer does not have an irregularly high amount.
The IRS will charge and implement various penalties and interests for late payment. It stands true, irrespective of which solution an individual chooses. For that reason, it becomes more arduous for a taxpayer to pay back the owed tax and amount the later they do so.
The bottom line of the issue is not ignoring and forgetting about the problem. An individual should choose whatever option they can to ensure that they can pay back whatever amount they owe, no matter how late. It guarantees the taxpayer’s protection from other severe situations such as asset and property seizure by the government. After all, the IRS is willing to help needy people and even provide the assistance and help of a tax professional.