What to Do If You Cannot Pay Federal Taxes

By Joseph Nicholson
The IRS, several options, their federal taxes, time

It is not uncommon for a taxpayer to owe more taxes than they can afford to pay by April 15. The Internal Revenue Service (IRS) provides several options in this situation, which generally involve either requesting additional time or paying in installments. In addition to sending payments by check or money order, taxpayers can enroll in the Electronic Federal Tax Payment System (EFTPS) to pay electronically. Failure to pay, however, is not an option. Bankruptcy does not remove tax debts, and you can face fines, wage garnishment and even criminal charges and imprisonment for failure to pay federal taxes.

Requesting Time

If you think you could pay your income tax bill in a lump sum if you just had a few more weeks, you can request a brief extension to pay. Some interest will be charged, but not the late penalties that would accrue if you didn't request the extension. To request an additional 30 to 120 days, taxpayers can call the IRS hotline at 800-829-1040 or complete the online payment agreement (OPA) linked in the Additional Resources section below. If you can pay in full within 120 days, you can avoid the fee for starting an installment plan.

Installments

You can also use the OPA to request to pay by installment if you owe $25,000 or less. This method will confirm for you instantly whether your request to pay in installments has been approved. Alternatively, you can fill out Form 9465 (see Additional Resources below) and attach it to your tax return, but you should file well before the deadline if using this method. If you owe more than $25,000 in taxes, penalties and interest, you will likely have to file the Collection Information Statement, Form 433F. There is an automatic fee of $105 to enroll in an installment plan unless you allow the IRS to automatically debit your bank account each month (in which case the fee is $43), and your payments must be enough to satisfy your debt within five years. Interest is applied to your total taxes owed if you pay by installment.

Payment Methods

If you are sending your installments by mail in the form of a check or money order (do not send cash), the IRS recommends including Form 1040-V (available online in .pdf form) with your check to ensure it's credited properly. Even better, the IRS suggests you pay electronically through the Electronic Federal Tax Payment System (EFTPS). The IRS can also directly debit your bank account or set up automatic deductions through your employer. These options can be selected by enrolling with EFTPS and completing the OPA.

About the Author

Joseph Nicholson is an independent analyst whose publishing achievements include a cover feature for "Futures Magazine" and a recurring column in the monthly newsletter of a private mint. He received a Bachelor of Arts in English from the University of Florida and is currently attending law school in San Francisco.