Many people filed their tax returns at the last minute. This should not be of much surprise as it is typical. Taxes can most certainly be an uncomfortable experience. This is especially true when you discover that Uncle Sam wants more than what you have paid. It can be a shocking experience. What is frustrating is that the tax code keeps getting bigger and bigger. The code is now more than sixty thousand pages long. What to do? Call your congressmen and demand change!
What happens if you have a bill that you cannot pay? After all, the rules are such that you need to pay what is owed the day that taxes are due. If you cannot pay, are you going to jail? No. The only way this would happen is if the IRS could prove that you intentionally avoided paying your tax bill. You can’t go to jail because you don’t have the money to pay your tax bill, but you can go to jail for not filing. When you do not pay, the IRS will send you a letter stating that you failed to pay, and they will start charging you interest. There is a penalty for late filing of 5% of the tax not paid by the due date for each month, or part of a month, that your return is late. Generally, the maximum penalty is 25%. But if your return is more than 60 days late, the minimum penalty is $100 or the balance of the tax due on your return, whichever is smaller.
The best thing to do to in order to avoid paying to little tax is to regularly check your withholding which can be calculated at the IRS.gov website. There, you can input your financial data and have exemptions adjusted on your w-4 at any time.
Back to the tax bill. If you cannot pay, think of what resources you have available to pay the bill. Try asking friends or family. Make up a promissory note and PAY THEM BACK! A home equity loan may work. The interest will be deductible. Normally, I would not suggest that you borrow money to pay a tax bill, but this is a debt you MUST pay. It is not wise to fool around with the IRS.
Another suggestion is to complete a Form 9465 which will allow you to go into an installment agreement where you will pay monthly plus interest. You can do this if you do not ask for an installment plan within a two year period. If the IRS approves your request, you will be charged a $102 fee. If you’re setting up as direct debit arrangement, the IRS will charge an additional $52 one-time fee. Remember that the IRS will treat this like a loan and will charge you interest.
If this does not work, and you have an economic hardship, then you can also file Form 656. This is a work out program that you can create with the IRS approval. The IRS has cautioned that this program is designed only for taxpayers in very extreme circumstances. It’s not designed for everyone with a financial problem, nor should it be viewed as an invitation to avoid paying taxes.
You need to understand that the IRS is not to be avoided. Talk to them. Let them know of your circumstances. Get someone at the organization to help you. If you avoid them, you could infact get into serious trouble.
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