We know owing taxes can be a headache, especially if you don’t have a CPA or tax advisor to walk you through the process. If you fail to pay your taxes, in most cases you will only face interest or penalties, rather than going to prison for tax evasion. Even if you do not have the financial capacity to pay the next day, you should still file your return or at least file for a six-month extension. Then we can help you decide what payment options are available to you. 

How do IRS Payment Plans work? 

A payment plan is an agreement with the IRS to pay taxes you owe across an extended period of time. An online payment plan is one of the options you can apply for if you are a qualified. Once your application is completed you will receive an immediate notification of whether or not your payment plan has been approved. 

The payment options available to you are, full payment (yes, the less fun one), a short-term payment plan (paying within 180 day or less) or a long-term payment plan (an installment agreement – paying monthly). It is important to know that depending on your specific tax situation, we can help determine which payment option available is the best fit for you.

Does owing the IRS go away? 

Fortunately, in most cases, owing to the IRS is not going to haunt you forever. It is generally best to take care of IRS problems before they become more severe. There is a ten-year statute of limitations on IRS collections. This means that the IRS can attempt to collect your unpaid taxes for up to ten years from the date they were assessed.  Except for some important exceptions, after ten years, the IRS will not be able to collect. If your Collection Statute Expiration Date is near, the IRS can possibly act aggressively to get you to pay as much as possible before the deadline. 

You must remember the ten-year limitations period begins on the date of the tax assessment. There will be a written notice of the amount you owe in case you do not pay in full when you file your tax return. The date on this notice starts the ten-year limitations period. In the case you did not file a tax return, the IRS can create a substitute return for you and make a deficiency assessment, which starts the then year period. 

Can I file tax if I owe the IRS? 

We understand if you have questions regarding if you should or should not file your taxes, if you are not able to pay in full the amount due at the time of filing. However, it is important to keep in mind that  the best practice is to file your taxes on time, whether you plan on paying or not. If for some reason you don’t have the adequate financial capacity to pay what you owe, you should consider one of the payments agreements the IRS offers. These include: 

• An agreement to pay within the next ten days. 
• A short-term payment plan to pay within 11-120 days. 
• An installment agreement, to pay the balance due in monthly payments. 

Businesses owing $25,000 or less from the current and prior calendar year, who can pay what they owe within 24 monthly payments, can use an online application.

How long does the IRS give you to pay back taxes? 

As previously mentioned, Uncle Sam offers payment plans to pay your taxes. He doesn’t want to have to come after you to get the money you owe. Other than the payment plans I explained above, you can fill out Form 9465 and mail it to your local IRS office to see what kind of plan you qualify for. 

Eligible taxpayers can be approved for up to 72 months to pay in full what they owe. It’s important to keep in mind that interest and penalties will continue to pile up until the balance is paid off. If in any subsequent tax years, you are owed a refund, the IRS can use those refunds towards the balance of what you owe.

What happens if you don’t pay the IRS the full amount? 

You might be wondering if it’s necessary to file your return if you can’t pay your tax bill. However, you should know that this is the most important thing. You must file your return or an extension to avoid penalties. The IRS automatically tacks on a 5% failure to file penalty for every month you owe taxes, up to a maximum of 25% of unpaid tax plus interest on the bill until you pay in full. Please note, this is separate from interest charges due to nonpayment or late payment. You can avoid a portion of the fees just be filing on time, even if you do not pay on time! 

There are other consequences the IRS can impose on to you to make you regret skipping out on paying your taxes, other than penalties and interests. Such as garnishing your wages, taking property (personal or business), or even your passport could be canceled.  

Luckily, there are a few resources that might help you, such as the online payment plan which allows you to pay off an outstanding balance over time. Once your application is submitted, you will receive notification that your payment plan has been approved. This resource is processed more quickly than requests submitted with electronically filed tax returns, even if the new tax is not yet assessed. 

Online payment plan options include: 

• Short-term plan: The payment period is 120 days or less and the total amount owed should be less than $100,000 including tax, penalties and interest. 
• Long-term payment plan: The payment period is longer than 120 days, paid in monthly payments, and the amount awed is less than $50,000 including tax, penalties and interest. 

Conclusion 

It can be confusing and fairly unpleasant filling your taxes, and even more when you are expected to pay more taxes than you can’t afford. In this situation, as explained before, the worst thing you can do is not file a return to avoid payment. Requesting an extension will give you an extra six months to get your return completed. If you file an extension before the April tax deadline you won’t have to worry about the failure to file penalty. However, you could still owe a failure to pay penalty on any outstanding taxes (0.5% of the balance up to maximum 25%). 

If you need help with your taxes or have any other manner of financial questions, consider working with a financial advisor at Molen & Associates. Call us today, we are happy to serve you and help you navigate through any tax situation. 

Edgar Castillo 

Tax Advisor & Accountant