How to pay off your IRS debt
Owing back taxes for the previous year or longer to the IRS can easily count among the more stress-inducing experiences in life. For one thing, the tax situation can snowball out of proportion with all the interest and penalties that the IRS imposes on defaulters. Secondly, if you continue to ignore their multiple notices, the IRS may seize your property or claim your wages. Rather than let things get that drastic, resolve your current obligations to the IRS for back taxes in the following ways:
Make an Immediate Payment in Full Before Any Additional Fees Accrue
An immediate full payment lets you avoid accrued fees, having to pay interest on the tax amount, and facing any future penalties. If you are an individual, you can pay the IRS from your savings account or your checking account. Individuals, as well as businesses, must enroll in an Electronic Federal Tax Payment System for making online or phone payments. They can also make payments by check, debit card, credit card, and money order. There is no set-up fee for online, phone, mail, or in-person applications.
Seek a Need-Based Deferral
Using the Online Payment Agreement application, you can request more time for your tax payment. After reviewing your case, the IRS may allow you to pay the entire debt amount in 60 or 120 more days. They will also charge you less interest and impose fewer or no penalties.
Make an Offer in Compromise
With an Offer in Compromise (OIC), the IRS will review your income, expenses, and assets to determine your ability to pay the tax debt. They may allow you to settle your debt by paying a lesser amount than what you owe. While this sounds like an excellent debt repayment plan, please note that the IRS usually turns down over 80% of OIC applicants. It might help if you check your eligibility on the Offer In Compromise Pre-Qualifier tool on the IRS website.
To use this tool, you must not be involved in an open bankruptcy proceeding, must have filed your federal tax returns, and must have made all estimated current year payments. If you have a business with employees, you must have made the necessary federal tax deposits for the current quarter.
Seek a Payment Plan to Pay Off IRS Debt in Installments
The IRS allows tax debt payment in installations if you can’t pay the full tax amount. To qualify for an extended payment plan, your debt must be equal to or less than $50,000 and you must have filed your tax returns for the past five years. If you qualify, you must pay a user fee and make monthly online payments over a period of 120 days or longer. If your debt is $25,000, the IRS can offer you a streamlined installment agreement. You will get six years in which to make your tax debt payment to the IRS. If you agree to pay through direct debit or payroll deduction, you don’t have to provide a Collection Information Statement.
Depending on your situation, you can choose one of these options for paying off your tax debt. With concerted effort, you will soon pay it off in entirety and won’t have to worry about IRS repercussions.