Can't Pay Taxes on Time? Payment Fees Jumped This Year
By Jim Blankenship
NEW YORK (AdviceIQ) -- Costs of doing business with the Internal Revenue Service recently rose for those needing special arrangements to pay taxes. Here's what to know.
If you can't pay your federal individual income taxes by the deadline of April 15, you may be able to set up special payment plans with the IRS. Some fees rose significantly.
Installment agreements. If you owe the IRS for taxes, penalties and interest and you can't pay the amount in a lump sum now, you can set up an installment agreement. In this, you agree to pay the federal government a set amount monthly until your balance is gone.
If you set up a direct-debit payment plan and pull the payment directly from your bank account, the fee remains unchanged from 2013 at $52. This preferred method to set up such a plan gives the IRS direct access to debit your account for the payment rather than relies on you to make the payment manually, which risks late payment and the resulting penalties.If you set up your installment agreement so you control sending payment (by paper check, for example), the fee went up this year to $120 from $105, an increase of 14.2%. If you already maintain an agreement with the IRS and need to restructure or reinstate a suspended installment plan, your fee jumped to $50 from $45 (11.1%). Offer in compromise. In an OIC, you owe a balance to the IRS and petition the agency to settle the debt for less than the original balance due. Sounds wonderful, but it isn't that easy if your debt to the IRS is so great and your assets and income so little that you're unlikely to pay off the debt within what the agency considers a "reasonable" period. The IRS pre-qualification form helps you understand if applying for an OIC works for you. OICs come with no guarantees that the IRS will accept your application. In 2012, the IRS granted only 24,000 OICs for 64,000 applications received (37.5%, up slightly from 34% in 2011). To qualify, you must be current with all filing and payment requirements and not be in an open bankruptcy proceeding. Also beware of tax professionals and other self-proclaimed experts who promise an OIC to pay your debt for pennies on the dollar. low-income requirements, you don't have to send the OIC application fee or make monthly payments while the IRS reviews your offer. -- By Jim Blankenship, CFP, EA, an independent, fee-only financial planner at Blankenship Financial Planning in New Berlin, Ill. He is the author of An IRA Owner's Manual and A Social Security Owner's Manual. His blog is Getting Your Financial Ducks In A Row, where he writes regularly about taxes, retirement savings and Social Security. AdviceIQ is a network of financial advisers that writes insightful articles for the public about investing and wealth management. All articles are edited by AdviceIQ's editor in chief, Larry Light. AdviceIQ certifies that all its advisers have no regulatory infractions. To subscribe to AdviceIQ's RSS feed for personal finance articles written by financial advisors and AdviceIQ editors, click here. Follow AdviceIQ on Twitter at @adviceiq.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts