October 15th and what seemed like the never-ending tax season of 2020 has officially ended. But what if you have a balance due with your taxes at October 15th and can’t pay it in full! Due to the COVID-19 pandemic, many taxpayers have lost their jobs and may have significantly changed tax situations from last year. In fact, a lot of taxpayers are struggling and unable to pay their taxes. However, the IRS offers several options to taxpayers to help pay taxes such as installment agreements and the Fresh Start program.
What Are Installment Agreements?
An installment agreement is used for individuals who owe income tax on Form 1040 and can’t pay the full amount of tax due within 120 days. The agreement allows taxpayers to pay their tax within an extended timeframe.
This agreement is requested at the time of filing a tax return, and filed on Form 9465. Installment agreement requests may also be filed online if the payment due is less than $50,000. If the tax payment due is over $50,000, the form must be mailed in with additional information requested on Form 433-F. If the taxpayer, uses the Online Payment Agreement application there is a lower user fee than if the applying with Form 9465.
The amount due for the tax return year requested is entered on the form plus any additional taxes owed from notices received. If the taxpayer expects to pay an amount with the request, then this is deducted from the total amount due and the balance is divided by 72. The result of equation is the minimum amount that is expected to be paid each month. If the taxpayer wants to make a larger payment each month, then the amount is entered on the form. Monthly payments can be automatically withdrawn from a bank account or from a payroll account. Penalties and interest will continue to accrue until the balance is paid in full.
Once the application is received, the IRS will let the taxpayer know within 30 days after they receive the request whether it is approved or denied.
What Is the Fresh Start Program?
The IRS Fresh Start Program began in 2011 to help struggling taxpayers by expanding and adopting more flexible Offer-In-Compromise (OIC) terms. This is an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
An OIC allows the taxpayer to settle debt for less than the full amount owed. This may be an option to consider if the taxpayer can’t pay the full tax liability or if doing so creates a financial hardship.
The IRS considers unique facts and circumstances such as:
- ability to pay
- asset equity.
The IRS has a Compromise Pre-Qualifer tool that lets the taxpayer determine if eligible for this option. There is an initial application fee of $205. If the taxpayer doesn’t get approved, the application fee will be refunded.
If you find yourself in a bind and unable to pay your taxes or receive a notice for prior year taxes due, don’t hesitate to reach out to Bernicker, Eiger & Lang. We can help determine if you qualify for the Fresh Start Program or an installment agreement. We can help you file the applicable forms and get you on track to paying off your taxes, making life less taxing for you!