If your return wasn't filed by the due date including extensions of time to file : You may be subject to the failure-to-file penalty, unless you have reasonable cause for your failure to file timely.
Tax not paid in full by the original due date of the return regardless of extensions of time to file may also result in the failure-to-pay penalty, unless you have reasonable cause for your failure to pay timely, or the IRS has approved your application Form , Application for Extension of Time for Payment of Tax Due to Undue Hardship. Interest is charged on taxes not paid by the original due date, even if you have an extension of time to file or pay.
Interest is also charged on penalties. The agreement allows you to pay any taxes you owe in monthly installments. The setup fee is waived for qualified lower-income taxpayers. The IRS will automatically apply the low-income installment agreement fee if you qualify; you do not have to request it. Short-term Payment Plans days or less have no set-up fee. You must show the amount of your proposed monthly payment and the date you wish to make your payment each month.
The interest will be determined by the current federal short-term interest rate plus an additional 3 percent. The short-term rate changes every three months, so your interest rate may go up or down depending on how long it takes to pay your taxes in full.
Paying down your owed taxes creates less money for the government to charge interest on, resulting in the failure to pay penalty being less severe. However, allowing it to accrue long term can result in steep and significant fines. The IRS can also seek to have people jailed for failing to pay their taxes, but it is extremely uncommon for that to happen — particularly if the tax bill is not well into the hundreds of thousands of dollars or more.
This may include garnishing wages from your paycheck, placing a lien on your home or other high-value property, or come directly for your bank account. The IRS may also withhold future tax returns until your tax bill has been paid down. There are other penalties you may face, as well. The IRS may also choose to refer your outstanding tax payment to a private collections agency, which will likely be much more aggressive in trying to recover the funds. There is a year statute of limitations on unpaid taxes, meaning in most cases the IRS cannot pursue taxes owed that go back beyond a decade.
There are some exceptions, but in most cases, the agency will have to drop its collection efforts. The agency is more interested in collecting what it can than penalizing you, and is likely to work with you to set up a payment plan or an installment agreement.
Payment plans still carry some interest and penalties, but less than the penalties for those who are not paying. However, failing to make a payment may result in the government requesting the full amount and ending the installment plan.
If you inform the IRS that you cannot pay, it is also open to negotiating a smaller payment. Oftentimes, the IRS will lessen your overall tax burden if you are willing to pay in a lump sum. How We Make Money. Written by AJ Dellinger. Written by. AJ Dellinger. AJ Dellinger is a contributing writer for Bankrate.
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