We pay our federal income taxes through a voluntary pay-as-you-go payroll deduction, or through a system of quarterly estimated payments to report earnings not subject to payroll deductions. The system encourages upfront payments and can add additional tax debt to the taxpayer who underpays.

If you have underpaid your taxes, you’ll need to get IRS Form 2210, read the directions, and do the daunting and complicated math. On the other hand, you can just file your return and wait for the IRS to do the work and send you a bill.

IRS tax payment options

The filing deadlines for individuals is April 15th (April 18th for 2016). One well-kept secret, though, is that if the IRS owes you a refund, the filing deadline is moot, because April 15th is the date when all arrears in tax payments are due. Late filing in cases where the taxpayer is owed a refund only results in a delay of said refund.

On the other hand, taxpayers who owe the IRS, have a number of payment options:

  1. Pay it by check and include the check with the return.
  2. Pay online directly from a bank account.
  3. Pay with a credit or debit card.

Choices 2 and 3 can be done online. See the IRS webpage, Payment Options: Pay Online, Installment Plans and More for details and other options available to you.

What if I am late making the payment?

paying tax debt owed irs helpThe April 15th deadline (for most taxpayers) starts the clock on interest and other penalties on unpaid tax. The IRS calculates the interest from the due date of payment, based on the federal short-term rate plus three percent–and the interest compounds daily.

Then there are failure-to-pay and failure-to-file penalties, which can amount to a maximum of 25% of the amount owed. IRS Tax Topic 653 has details on late tax payments and the associated penalties.

You can apply for a tax filing extension but…

The big but here is that, although you can file for an extension for completing your tax return, if you owe tax and want to avoid penalties, you must pay the amount due by April 15th. IRS Form 4868 has instructions on obtaining an automatic six-month filing extension.

Installment Agreements with the IRS

Taxpayers financially unable to pay the tax debt immediately can make monthly payments by entering into an installment agreement. Paying the tax debt in full through such an approved agreement can reduce or even eliminate the payment of penalties or interest, but you must file all required tax returns on time.

Read more and download the IRS Installment Agreement forms from the IRS Payment Plans, Installment Agreements webpage.

What happens if I don’t pay?

Non-payment of taxes will set in motion a series of written notices from the IRS. Failure to resolve the indebtedness can result in liens, as well as bank account and business asset forfeitures, all of which have the full force of federal law backed up by court orders.

If you need help…

Tax planning is all about mitigating last year’s impact on your personal and business finances, as well as starting off on a much better footing for this year and beyond. Contact Dukhon Tax and Accounting by email or give us a call. We specialize in both personal and small business tax accounting.