According to a survey by GoBank, not only do 57% of Americans find taxes painful – comparing them to a trip to the dentist or getting gum stuck on their shoe – but a large number also find the process stressful and confusing.
One thing I’ve seen confuse a lot of people is whether filing a tax extension also extends the time they have to pay their tax bill. The answer is no. The IRS even has this caution on its website: “Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability.”
The good news, however, is that the IRS is willing to let you set up an installment plan, and it hurts a lot less than the dentist.
“The IRS is kinder and gentler since the old days and will work out a payment deal,“ says Jonathan Wolfsohn, owner and principal of Wolfsohn Accounting Services in New York.
If you need to get an installment plan, you still have to file all of your paperwork and pay what you can on April 15. “By filing and paying something you are showing good faith, something the IRS appreciates. Doing the ‘right thing’ goes a long way,” Wolfsohn adds.
Here are some things you should know about installment plans:
- Your monthly payment will be the amount you owe, divided by 72. There will also be some penalties and interest charged. www.irs.gov.
- If you pay off your balance within 120 days, setting up an installment plan is free. If not, the IRS does charge a fee:
$52 for a direct debit agreement
$120 for agreements not debited directly from your bank account
$43 if your income is below a certain level
- If you owe less than $10,000, your installment plan will usually get automatically approved as long as you pledge to pay off the balance within three years.
- You will also be charged penalties and interest for paying late www.irs.gov, but Uncle Sam wants your tax bill to be affordable.
- Acceptance is not automatically guaranteed for payments over $10,000, but the IRS does require a minimum payment equal to your balance divided by 72.
- Qualifying for a higher balance will require more financial information.