This summer you received a tax bill from the government for a hefty amount, far beyond your means to settle in one lump sum cash payment. What should you do? There are a few options for you.
If your tax amount is for late taxes, it would include penalties and interest payments. These should be considered in deciding which option would be best. Firstly, you can take a loan to pay the outstanding tax bill in one go, in which case you should evaluate if the interest on the loan is less than the penalties and interest on the tax amount. If the loan interest is higher, then obviously you should opt for other means to pay.
Another option would be to pay using your credit card. If you choose to do so, you need to contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-PAY-1040 (also www.pay1040.com). Again, the point to consider is whether the credit card interest exceeds the aggregate sum of the tax penalties and interests.
A third method of payment would be to pay by electronic transfer of funds. If you choose this method, you can use the Electronic Federal Tax Payment System by calling 1-800-555-4477 or 1-800-9458400 or visiting the relevant website at www.eftps.gov.
Besides the method of payment, you also have the option of paying in a lump sum or paying by installments. But installment payments are only open to you if you qualify. In order to qualify, you need to be up-to-date in filing all your tax returns and estimating your taxes.
Assuming you qualify for installment payments, the next steps to take would depend on whether you owe less or more than $25,000 in taxes, penalties and interests. If you owe less than $25,000 in total, you can arrange for installment payments in one of two ways. Your first choice is to go to www.irs.gov and use the Online Payment Agreement to request an installment payment agreement. Your second choice would be to fill in the IRS Form 9465, Installment Agreement Request and enclose it along with your tax bill in the IRS envelope you received from them. Whichever methods you choose, you need to specify the amount of monthly payment you want to make. The minimum amount you should propose is an amount that would pay off your total debt in 60 months or less.
If you owe more than $25,000 in total, you need to fill in Form 433F, Collection Information Statement, before the IRS will consider your request for installment payments. In this case, you also need to propose your monthly payment amount. If this situation applies to you, propose the highest amount possible.
It normally takes the IRS about 30 days to approve your request for installment payments and if it is approved, you will be levied a one-time fee. The fee is $105 for new agreements or $52 for agreements where installments are deducted from your bank account. The fee can be as low as $43 for taxpayers who earn less than a certain amount.
That sums up how to pay off your tax debts.