What if I can't pay my tax bill?
You're working on your return, April 15 is just around the corner, and it looks like you're going to owe more taxes than you can afford to pay right now.
This situation can cause anyone's heart to skip a beat, but don't panic! Follow our step-by-step process below to minimize or eliminate late-filing and late-payment penalties.
Step 1 - File your return (or extension) by April 15
Did you know that the penalties for not filing your return (or extension) by the April 15 deadline are up to 10 times higher than the penalties for not paying taxes owed?
Don't let the distraction of an unexpected tax bill keep you from filing your return on time. If it looks like you won't be able to file your return by April 15, file an extension to avoid the late-filing penalty. Click here for instructions.
Step 2 - If possible, make a partial payment by April 15
Late-payment penalties and interest are calculated as a monthly percentage of your outstanding balance after April 15. The less you owe and the sooner you pay it off, the better. More info
To make a partial tax payment when filing your return, select the option I will mail a check when asked how you want to pay your federal taxes. (Don't choose the direct debit or credit card payment options; these will charge the full owed amount, which you don't want.)
You can also make a partial payment when filing an extension; TurboTax will guide you through this process as you prepare your extension.
Step 3 - Consider an installment plan
For taxpayers who are unable to pay their bill in full, the IRS offers the option to make monthly payments through their Fresh Start Installment Agreement. Certain conditions apply; you must owe $50,000 or less in combined tax, penalties and interest and have filed your return, among other things.
The IRS charges up to $105 to set up the agreement and you'll still have to pay late-payment interest and penalties on any balance due after April 15, 2013. If your request is approved, the IRS will send you a bill with all of the information you'll need.
Here are the different ways to request the IRS Fresh Start Installment Agreement:
- Online at the Online Payment Agreement Application site;
- By completing and mailing IRS Form 9465, either through TurboTax or via IRS.gov;
- By calling the IRS at 1-800-829-1040; or
- By visiting your local IRS office in person.
What about installment agreements for state taxes?
Many states allow taxpayers to request an installment agreement as long as certain conditions are met. These conditions vary from state to state, but are similar to the IRS in that your tax liability cannot exceed a certain amount.
The process for requesting a state installment agreement also varies; some states only require a phone call, whereas other states make you fill out a form.
As a rule, TurboTax State programs do not support installment agreement requests, but there are exceptions such as California's Form 3567.
If you do not see this option in your state program interview, contact your state tax agency and ask if they offer an installment agreement.
I cannot pay due to a financial hardship. What are my options?
If you're unable to make federal tax payments because of a financial hardship, the IRS will work with you. Call the IRS at 1-800-829-1040 or visit your local IRS office to discuss your options.
For state taxes, contact your state tax agency to explain your situation and explore other payment options.