As tax day approaches, many Americans may be struggling to pay their tax bill by the April 18 deadline. Fortunately, the Internal Revenue Service (IRS) offers several repayment options to help individuals manage their tax debt.
Different Options for Taxpayers to Pay Their Tax Bill
Eric Bronnenkant, a CPA, certified financial planner, and head of tax at Betterment, stated that there are multiple options available to help taxpayers repay their debt. One option is the short-term repayment plan, which is available to taxpayers who owe less than $100,000 in combined tax, penalties, and interest.
There is no formal application fee, and penalties and interest accrue until the balance is paid in full. The repayment period is a maximum of 180 days, and payment can be made directly from a checking or savings account or by check, money order, or debit/credit card. However, fees apply when paying by card, according to an article published in Yahoo News.
Another option is the long-term repayment plan, which requires a setup fee of $31 if paying through monthly automatic withdrawals or $130 for non-direct debit repayment. To qualify, taxpayers must have filed all required returns and owe $50,000 or less in combined tax, penalties, and interest.
Application fees typically apply, but they can be reduced for low-income taxpayers. The repayment plan has a maximum term of 72 months, and automatic payments are required if the owed balance is more than $25,000 for individuals and $10,000 for businesses.
Taxpayers Can Also Offer “Offer in Compromise”
Individuals who can’t pay their tax obligations in time or whose debt could create a financial hardship may request an Offer in Compromise, which is an agreement between the IRS and the taxpayer to settle the tax liability for less than the owed amount. This option is intentionally not easy to qualify for, and several factors are considered, such as the ability to pay, income, expenses, and asset equity.
Furthermore, the Internal Revenue Service provides several repayment options to help individuals manage their tax debt, and taxpayers should explore these options to avoid further financial stress.