Owe The IRS And Filing For An Extension? Three Things You Need To Know
For people using income tax preparation services this year and finding out that they owe the IRS, many of them may opt to file for an extension or payment plan. If you are in this boat, and you find that there is no way you can pay your tax debt in full, you can arrange for an extension to pay the debt and make monthly payments. Your tax prep agent can file a couple of forms on your behalf to get the process started, but there are a few things you should know first.
Your Tax Debt Is Split up over Twelve Months
To avoid any financial difficulties with taxes you might owe next year, the amount you owe this year is often split up over the next twelve months in equal amounts. While this is more manageable than, say, four thousand owed and paid up front, it is still a substantial amount for most Americans to manage every month. If you file late in the tax season, the IRS may also decide to cut back the number of months and increase your monthly payments, making things a little more complicated. It is best to file as early as you can, and pay as little as you have to over a year rather than eight months, six months, etc.
You Have to Pay the IRS for the "Convenience" of Monthly Payments
Most people are floored to discover that the IRS charges a "convenience" fee for paying your taxes via monthly payments. The typical charge is $243. If you can show that you are "impoverished," and file a request for a reduction in the fees, you may only have to pay $43. If not, you are paying the larger fee on top of monthly interest charges and service fees. To complicate matters, if you pay online with a credit or debit card, the authorized service providers charge their own fees for you to pay your IRS bill.
Miss a Payment and You Get Sued
To add insult to injury, the IRS can sue you if you miss a monthly payment and become slack in your timely payment history. All bets are off then, and you may be required to pay the remainder of your tax debt in full. That said, it is always best to pay whatever you can when you file your taxes in order to reduce the amount for which you are applying for and requesting an extension and monthly payments.
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