It will happen to everybody at one time, you owe the IRS money on your taxes but you do not have the money to pay. So what should you do?

The IRS has several options available to individuals who owe money but can not currently pay their taxes.

Direct Pay – You can go to the IRS website at www.irs.gov/payments for this direct pay option. This will allow you to pay directly from a bank account and you can pay your 1040 taxes or make estimated tax payments with direct pay. Direct pay will even allow you to schedule future payments up to one year in advance. This option will also allow you to look up any past payments that you made.

Debit or Credit Card Payment – You can make a payment using a debit or credit card although you will pay an additional processing fee. Currently the IRS uses third party payment processors for debit or credit card payments. These payment processors generally will charge an additional fee of 1.96% or 1.99%. Currently the IRS will only allow you to make two credit card payments per year.

Payment Plan – You can make a payment plan with the IRS whereby every month on a designated date a payment will be made. The advantage of a payment plan is that it will prevent the IRS from any further collection activities being enforced against you for the unpaid taxes. The majority of payment plans can be easily set up online. You may qualify to set up an online payment plan if you owe less than $50,000 for a long-term payment plan (installment agreement is longer than 12 months). You may also qualify to set up online for a short-term payment plan (paying in 120 days) if the amount owed is under $100,000. In the event that you do not meet these criteria than your payment plan must be set up using Form 9465.

Temporarily Delay the Payment – If the IRS determines that you can not pay your taxes, then they may classify your account as currently not collectible and suspend collection activities against you. This does not remove the tax that is owed, it only temporarily stops any collection activity. Any interest and penalties will continue to accrue on the tax that is owed.

If you have any questions about paying your federal taxes please contact our firm.