While we have a few more days to pay our tax bill this year — April 18 instead of April 15, due to the Emancipation Day holiday in Washington D.C. — for many of us, 3 extra days is not enough to come up with the money we need to pay off our tax tab.
[Related: How Small Business Owners Can Save On Taxes]
Just to be clear, even if you file an extension, you have to pay something on April 18. The IRS charges failure-to-pay penalties, and interest on unpaid balances, which will increase the amount you owe. The IRS is, however, willing to help you set up an installment plan that sets up monthly payments that are within your budget.
“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.
“By filing and paying something, you are showing good faith; something the IRS appreciates. Doing the ‘right thing’ goes a long way,†he adds.
If you need to get an installment plan, you still have to file all of your paperwork and pay what you can on April 18. “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.
- 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.
The bottom line: Even though filing an extension and setting up an installment plan a few extra minutes, if you need help paying your taxes, help Uncle Sam help you; you’ll avoid a lot of headaches and costs down the road.