What to do when you can’t pay your taxes

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What to do when you can’t pay your taxes
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What should you do if you can’t pay your taxes? You must file a return regardless.

If you fail to file and you owe money, the IRS charges a penalty rate that works out to be some 60% a year. But for those who file and can’t afford to pay, it’s only around 6% a year.

Read more: 6 mistakes last-minute tax filers make and how to avoid them

You need to fill out Form 9465

So you ignore filing — or at least filing for an extension — at your own peril. Just file and pay whatever you can. If you can pay the remainder within four months, you’ll usually only incur a minimal penalty.

If you expect it will take longer than four months to pay what you owe, you’ll need to file Form 9465.

As long as you propose a reasonable payback time, usually before the end of the year, your 9465 will be easily approved.

Clark offers the following tidbit to help you through your repayment time.

“If you propose a payment plan and just keep sending money, your outstanding balance may be paid off before the IRS even has a chance to accept or decline your 9465,” the consumer champ says.

Is there a cost for getting on a payment plan with IRS?

The answer is yes. In general, it’s $225 to set up an installment agreement.

But there are some ways to reduce that cost of setting up a 9465:

  • You’ll only pay $107 if you agree to make payments by direct deposit
  • You’ll only pay $149 if you set up an online payment agreement
  • You’ll pay just $31 if you set up an online payment agreement and make payments by direct deposit

Low income taxpayers can get a special reduced cost of $43 to set up an install agreement. That amount is lowered to $31 if an online payment agreement is set up and the payments are made by direct debit.

Meanwhile, there is an $89 fee to modify or reinstate an installment agreement.

What if the amount you owe is so large that you can’t even begin to think about paying? You must still file your return.

“The penalties are so huge for failure to file and so light for failure to pay so long as you file,” Clark says.

Meanwhile, consider this: If you put what you owe on your credit card, you’ll pay a convenience charge of around 2.75%, plus interest to the credit card company on any balance you carry. That’s guaranteed to be much higher than what you would pay the IRS.

Read more: Tax Guide: Everything a last-minute filer needs to know

How to file your taxes for free regardless of your income

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Theo Thimou About the author:
Theo is director of content for clark.com. He has co-written 2 books with Clark Howard, including the #1 New York Times bestseller Clark Howard's Living Large in Lean Times.
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