What to Do if You Can't Pay Your Federal or State Income Taxes
If you can't pay an unexpectedly large tax bill by the filing deadline, the IRS (and many states) will let you sign up for an installment plan. With an installment plan, you can pay off your taxes through regular payments, often via payroll deduction or by regularly scheduled debits from your bank account. File your return in a timely manner to minimize any additional penalties.
However, before requesting an installment agreement, you should consider other less costly alternatives, such as getting a bank loan or using available credit on a credit card. This is especially true if the interest and penalties imposed by the IRS would be more than the interest on your credit card or a bank loan.
Please note that installment plans do not waive additional costs associated with late tax payments, including:
- Interest on the remaining balance due;
- Late payment penalties and/or late filing penalties;
- Accumulated interest on unpaid late payment or late filing penalties.
Nevertheless, for some taxpayers, installment plans are a convenient way – sometimes the only way – to pay off overdue taxes.
Money-Saving Tip #1: To minimize interest and penalties, pay as much of the outstanding balance as you can by the filing deadline.
Money-Saving Tip #2: File your return by the due date to avoid additional late filing penalties.
Be sure to look at the new relief options available in this year.
The Streamlined Installment program (also called the Fresh Start provision) expands on the existing agreement program and is meant for taxpayers affected by economic conditions in 2011.
Installment agreements are an option for those who cannot pay their entire tax bill by the due date. Penalties are reduced, although interest continues to be added (accrue) on the outstanding balance. This means the faster you can pay, the less interest you end up paying. There are other requirements, such as a minimum payment.
Form 9465: Installment Agreement Request allows you to make monthly payments on the balance due, assuming the IRS approves your request. The IRS charges up to $105 to set up an installment agreement.
See the IRS web page Online Payment Agreement Application
Streamlined agreements are available if your taxes (including back taxes) are less than $50,000. Agreements for taxes due over $50,000 may require providing financial statements to the IRS.
Important: Do not file Form 9465 if you are currently making payments on an installment agreement or can pay your balance due in full within 120 days. Instead, call the IRS at 1-800-829-1040.
Here's how to request an installment agreement in TurboTax:
- Select the Print & File tab.
- Continue until you reach the screen How Do You Want to Pay Your Federal Taxes?
- Select the option I want to request an installment payment plan. (You'll only see this option if your return shows a Federal Tax Due amount at the top.)
- Follow the on-screen instructions.
You can find additional information from the IRS at:
- Publication 594 – The IRS collection Process
- Publication 966 – Electronic Choices to Pay All Your Federal Taxes
- Form 9465 – Installment Agreement
A last ditch possibility when a person can prove need in certain hardship situations is IRS Topic 204 - Offers in Compromise. and Offer In Compromise webpage
