Have you been putting off paying your taxes because you simply don't have the money? LearnVest offers some solutions.
Struggling with your tax bill? There might be hope. The IRS is trying to make it a little easier for you.
The IRS announced earlier this month a major expansion of its “Fresh Start” initiative, which helps taxpayers by providing new penalty relief to the unemployed and making Installment Agreements, which allow you to pay off your taxes over time, available to more people.
You can benefit from the program in two ways:
If You Can’t Pay Right Now
You might be able to request and get a six-month grace period on failure-to-pay penalties if you meet all of the following criteria:
- You earned less than $100,000 last year, or less than $200,000 with your spouse if you’re married and filing jointly
- The 2011 taxes you owe don’t exceed $50,000
- You were unemployed at least 30 consecutive days during 2011 or 2012 up to April 17, or you’re self-employed and experienced a 25 percent or greater reduction in business income in 2011 due to the economy
If you meet the criteria, fill out Form 1127A to seek 2011 penalty relief. But keep in mind that even during the grace period, the IRS will still charge you interest on unpaid back taxes (currently three percent annually), so it makes financial sense to pay as soon as possible. Learn about the options you have to pay.
Read on for more.
Even with this new penalty relief, you should still file your return by April 17 or file for an extension. If you don’t, you will get charged a failure-to-file fee, which is around five percent a month, up to 25 percent.
If You Want to Set Up a Payment Plan
The Fresh Start provisions also mean that more taxpayers will have the ability to use installment agreements to catch up on back taxes. An installment agreement lets you slowly pay back what you owe in taxes over several months or a few years. In order to qualify, you must agree to monthly direct debit payments.
If You Owe Less Than $50,000
It used to be that you had to provide the IRS with a financial statement to sign up for an installment agreement for more than $25,000 owed in taxes. Now, you don’t have to provide them with a financial statement unless you owe as much as $50,000. You also now can take up to six years to pay off your taxes, instead of five years like before.
If You Owe More Than $50,000
You’ll still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F) in order to get an installment agreement. Alternatively, you could pay down your balance to $50,000 or less to avoid providing your financial statement.
You can set up an installment agreement with the IRS by going to the Online Payment Agreement and following the instructions.
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