Tax Relief

Tax relief may take one of various forms when it comes to filing taxes. You can reduce your tax liability
by:

• Tax deductions
• Tax credits (also called tax incentives)
•  Tax benefits (such as enrolling in a tax-free IRA or Individual Retirement Account)

Regardless of the form of tax relief you need, it will reduce your tax debt and help prevent any payments that are related to a tax underpayment or tax evasion penalties. The next section will give you a brief overview of tax penalties and how they may be imposed.

The easiest way to avoid tax evasion penalties, or an infraction that results in a tax underpayment penalty, is to seek advice from an income tax relief professional.

The 2 Main Tax Penalties

The 2 main tax penalties imposed on taxpayers include –

• Failure-to-file penalties, imposed for not filing a tax return by the due date. These penalties levy a rate of 5% on the tax stilled owed for a month or the part of a month the return remains late.
  You may have to pay as much as 25% of the owed amount.
• Failure-to-pay penalties amount to 0.5% of the unpaid tax if a return is filed but the tax goes unpaid by the tax due date. The rate jumps to 1% if the tax has not yet been paid after 10 days, or after the IRS gives the taxpayer a Notice of Intent to Levy Property.

By signing an installment agreement with the IRS, you can reduce the assessed penalty.

Interest on Unpaid Taxes

The interest on unpaid taxes is assessed from the due date of the tax return until the amount is paid in full. The interest is calculated quarterly, at the current federal short-term rate plus 3%. This amount accumulates or accrues daily.

Payments are applied to the tax owed, then to the penalties and interest.

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Preventing Tax Penalties

To prevent penalties, take advantage of income tax relief options, such as deductions, credits, and exclusions. If you are a business, you need to make estimated tax payments. If you don’t make the required quarterly estimated payments by the due date, the IRS can penalize you.

Tax relief in the USA in 2021 is especially significant because of the COVID-19 pandemic – an unexpected event that disrupted business operations and led the way to problems with tax filings.

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Small Employer Tax Credits

One of the big measures imposed for 2020 that affects tax relief in 2021 is the Small Employer Tax Credits program, covering required COVID-19-associated paid leave for employees. This measure and tax credit plan was implemented by the Families First Coronavirus Response Act (FFCRA), which passed in March 2020.

While the FFCRA Act expired on December 31, 2020, the Small Employer Credits program has been extended to cover leave payments made in 2021 between January 1 and March 31.

The Employee Retention Tax Credit

An employee retention tax credit, which was signed into law through the CARES Act on March 27, 2020, allows a credit equal to 50% of eligible employee wages paid by a qualified employer. The new law for 2021 allows an extension of the employee retention tax credit (up to $10,000) to cover the first 2 quarters of 2021, up to June 30, 2021.

The new law or extension for the 2020 law, allows a credit up to $14,000 over the 50% ($5,000) permitted for $10,000 in 2020. Therefore, 70% is taken from the cap of $10,000 x 2 quarters (or $7,000 each).

Payroll Tax Deferral Income Tax Relief

Through the CARES Act, you can defer a 6.2% employer portion of the Social Security tax owed for the initial amount of $137,700 of an employee’s 2020 wages from March 27, 2020 to December 31, 2020.
Businesses must pay the deferred amounts in 2 installments, each half due by –

• December 31, 2021
• December 31, 2022

If you are self-employed, you can defer half the liability for self-employment tax and pay your deferral amounts at end-of-year in 2021 and 2022.

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If you are not sure about your tax debt, you can to check to see if you have an outstanding balance with the IRS by going to IRS.gov/account. You can sign up in about 15 minutes and you only need to provide your identity once.

If you already know your tax debt, you can either make payments or learn more about seeking tax forgiveness in the form of a tax compromise.

Making Payments to the IRS

The IRS features 2 types of payment plans – short-term and long-term.

Short-term Payments

A short-term payment arrangement covers a period up to 180 days. Automatic withdrawals can be made from your checking account or you can pay with a debit/credit card, money order, or check. The maximum you can owe in taxes, penalties, and interest is $100,000.

Long-term Payments

If you owe $50,000 for taxes, penalties, and interest, you can make long-term payment arrangements of 120 days or more. Because of COVID-19, the IRS extended the period from 120 days in November 2020.
If you choose to pay by automatic withdrawal, you will be charged a fee of $31 to apply online and $107 if you elect to apply in-person, by mail, or by phone. These fees are waived for low-income applicants.

If you choose another payment method, other than automatic withdrawals, you have to pay $149 to apply online or $225 to apply in-person, by mail, or over the phone. The fees are lowered to $43 for low-income payers, and may be refunded in some cases.

The form of payment used for installment accounts is called a Direct Debit Installment Agreement (DDIA).

What to Keep in Mind when Paying the IRS

Keep the following in mind if you choose to make payments to the IRS:

• You still have to pay the interest and penalties and interest you owe if you make payments to the IRS. Arranging a payment plan does not lead to tax forgiveness in this respect.
• If you owe more than $25,000 in taxes, payments must be made by automatic withdrawal from
  your checking account.

You may also be eligible for an offer in compromise, or may be able to arrange a settlement that is lower than your current tax. An offer in compromise is helpful if you claim financial hardship or simply cannot pay the entire tax amount.

Applying for a Tax Compromise

To apply for an offer in compromise with the IRS, the following needs to take place.

• You need to submit an offer in compromise using IRS Form 656-B.
• You will be assessed a non-refundable $205 fee, unless you are low-income. In this case, you can get a waiver.
• You will need to make a non-refundable initial payment.
• You should be current on all your tax returns. If you have not filed tax returns for some time, you may not be eligible.
• The IRS has the right to maintain current tax liens until your offer is accepted or you have fulfilled the agreement and paid the owed tax.
• You cannot apply for tax forgiveness and a tax compromise if you are currently involved in a bankruptcy proceeding.
• Once you file an application for an offer in compromise, all collection activities by the IRS will stop.

If your application is accepted, some information for your offer in compromise will be made public, including your name and residential or business location. Your tax liability and offer terms will also be made part of the public record.

Rejections of your offer can be appealed after 30 days.

Choosing a Tax Relief Company

Needless to say, the IRS tax law is both complicated and complex. That is why you may want to consider getting assistance from a professional income tax relief service provider. The best tax relief companies assisted millions of clients navigate through the tax system easily, mainly supporting their efforts in finding the right tax solutions for them.