Buying Time and Clearing up Your Tax Debt to the IRS

The IRS is like a collection agency on steroids. Each passing day that you owe back taxes accrues additional penalties and interest on the amount due. But you still have options -- a tax filing extension and installment plan, to name two -- if you want to avoid compounding your problems with ruinous IRS levies and liens.

The tax is due on April 15th, regardless

If your tax situation is so muddled or complicated that you cannot gather up what you need to file by April 15th, you can submit an extension request -- IRS Form 4868 -- online or by mail. Your new due date will be October 15th. However, filing the form does NOT EXTEND your due date to pay what you owe. According to a piece on the US TaxCenter website:

“[A] tax extension gives you more time to file your income tax return, but it does not extend the deadline …. This means that you need to know how much tax you owe and be ready to submit payment by April 15, whether or not you are requesting a tax extension.”

Consider filing your taxes on time if you can

tax advice for delaying tax filing to irsSo your best approach is that if you can meet the filing deadline, but don’t have the funds to pay your tax bill, file anyway. The penalty for failing to file is usually more than penalty for failing to pay your taxes. If the IRS judges that you used the extension request simply to kick the problem down the road, your request for an extension could be denied and you could be faced with additional penalties for failure to file.

Setting up a time payment plan for taxes

The good news is that according to the IRS, you can work out a monthly payment schedule through an installment plan. You are eligible for an extended time payment plan if:

  • you owe no more than $50,000 in individual taxes
  • you owe $25,000 or less in payroll taxes if you run a business
  • have filed all required tax returns

Other conditions apply

The not-so-good news is:

  • Setting up a payment schedule is not free. The IRS currently charges $120 to set up a standard agreement or payroll deduction plan -- $52 for a direct debit arrangement.
  • Any future tax refunds will be applied to your debt until it is paid in full.
  • You must pay your minimum monthly bill when it is due.
  • You must also file future tax returns and pay all your taxes in full and on time.

To recap

So April 15th is when the IRS expects you to file your tax return and settle your tax bill. File an extension request if your situation is so complicated that you need time to gather the information you need for a complete and well-documented return. Otherwise, file on time and pay what you can and pay the rest later -- with penalties. If you want to avoid most or all of the late penalties, work out an installment payment schedule. The IRS will work with you.