December 6, 2012

If you have tax debt and you need relief, you need to know your resolution options.  If you have trouble paying your tax bill, be sure to stay in contact with the IRS.  Avoiding them could make your situation worse.  Also, file your return on time even if you can’t pay the taxes due.

According to the Internal Revenue Service, the agency may be able to provide tax relief.  There are three programs that they offer:

  • short-term extension to pay
  • installment agreement
  • offer in compromise

Keep in mind that while the IRS may waive penalties, they will not waive interest charges.

Short-term extension

A short-term extension is an agreement that you make with the IRS.  This arrangement will give you up to an extra 120 days to pay the balance in full. You will still be charged interest, but you won’t be assessed any penalties if you pay as agreed.

Installment agreement

If you need longer than 120 days to pay your taxes, you can set up an installment agreement.  You can apply online to set up the agreement if you owe less than $50,000.  Those who owe more need to call 1-800-829-1040 to set it up.

There are fees to set up an installment agreement.  The fees are as follows:

  • $52 for a direct debit agreement;
  • $105 for a standard agreement or payroll deduction agreement; or
  • $43 if your income is below a certain level.

You will need to pay at least $25 per month toward the debt.  Also, be aware that all future refunds will be applied to your debt until it is paid in full.

Offer in Compromise

The last option is an Offer in Compromise (OIC).  An OIC is similar to a settlement.  You will make an offer to pay less than the full amount due as payment in full.  The IRS may either accept or reject your offer.

There is a $150 application fee and a non-refundable initial payment due with your application for an OIC.  There are three payment plans to chose from:

  1. Lump Sum Cash option – You need to send in your application, $150, plus 20 percent of the total offer amount.  Once the IRS accepts your offer, you must pay the balance of the offer in no more than five installments.
  2. Periodic Payment option – You must send in the same initial payment as above, however, you will also make monthly payments while waiting for a written decision.  Once accepted, you continue making payments until the balance is paid.
  3. Low Income Certification – If you meet low income guidelines, you do not have to send the application fee or the initial payment.  You will not have to make monthly installments while waiting for approval.

Financial hardship

The IRS may temporarily stop collection efforts if you are unable to pay because of a current financial hardship.  Once your financial condition improves, collections will begin again. You will also be charged interest and late payment penalties.

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