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.
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.
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.