Tuesday, February 17, 2009

Can't Pay the IRS?

What do you do if you can’t pay the IRS the taxes you might owe in April? You have a few options:

You could borrow the money from a bank or your parents. You could put it on a charge card. Or you could borrow the money from the IRS.

Taxpayers have always had the option of paying their taxes over time by entering into an installment agreement with the IRS, a process that has recently been made easier. Historically, you had to prove you couldn’t pay the taxes in full before they would agree to a payment plan. Then the IRS realized they could save time and effort and raise more money by making the installment agreement process almost automatic.

To make such an agreement with the IRS you just need to complete Form 9465. You will have to divulge personal information such as your phone number and bank account information. You then submit a down payment and determine how much you will pay each month so you can pay off what you owe within one year. You can even pick a day when the payment is due and have the IRS automatically deduct it from your checking account each month.

Some good advice: Don’t skip a payment. The IRS gets really testy if you do. This could void your installment agreement and cause the IRS to put a lien on your bank account and other property. And expect a problem if you ask for an installment agreement every year.

Here is the catch: You are going to be charged interest and penalties on the balance due until it is paid in full. The total interest and penalties can rival charge card interest rates, so make the payments as high as you can afford, and pay extra if you can.

If you cannot pay your federal taxes, you may not be able to pay your state taxes either. The states also have installment plans in place to collect the taxes. However, if all the states are like Massachusetts, the process is difficult to go through. Usually, your state taxes are much less than your federal taxes, so my suggestion is to pay the state taxes in full if you can, and get the installment agreement with the IRS for your federal taxes.

1 comment:

Bernard said...


I second your comment about not missing a payment. I had to do this way back in the 1980s and missed a payment accidentally. About a week later I found my bank account balance was zero thanks to the IRS just siphoning all the money out. It took some time to clean up that mess and I'm glad it's never happened again.