IRS reminds taxpayers of options for making tax payments

The Internal Revenue Service has issued a notice reminding taxpayers who owe taxes but who can't pay in full that several options are available to help them meet their tax obligations and save money by the April 15 filing deadline.

Taxpayers should file their return on time, pay as much as they can with their return, and use the online payment features on the IRS Web site if they need to request a payment agreement.

Interest and penalties add up for people who don't file and pay on time. But taxpayers can limit these charges by filing on time and paying sooner.

Though interest, currently at the rate of 6 percent per year, and late payment penalties, normally 0.5 percent (1/2 of 1 percent) per month, apply to any tax paid after the April 15 deadline, taxpayers can limit these charges by paying sooner. In addition, by filing on time, a taxpayer avoids the much larger 5-percent-per-month late-filing penalty. For example, a taxpayer who files on May 1, owing $1,000 in tax, would be charged interest plus a $50 penalty.

Various e-pay options offer taxpayers the easiest and fastest way to make a full or partial payment with their return. These options enable taxpayers to make payments either online or by phone using electronic funds withdrawal or a credit card. Alternatively, taxpayers can send the IRS a check made out to "United States Treasury."

Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. The IRS answers questions and provides information about payment plans and installment agreements. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.

A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.

A monthly payment plan or installment agreement gives a taxpayer more time to pay. Though interest still applies, the late-payment penalty is cut in half for any month an installment agreement is in effect. This reduced rate of 0.25 percent (1/4 of 1 percent) per month is only available if the tax return was filed on time.

A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.

Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.

Some taxpayers can wait until after April 15 to file and pay. As a general rule, those eligible get the extra time penalty-free and interest-free without having to ask for it. Eligible taxpayers include:

  • Members of the military serving in Iraq, Afghanistan or other combat-zone localities. Normally, the filing and payment deadline is postponed until 180 days after the service member leaves the combat zone.

  • Disaster-area taxpayers in four states affected by recent floods, storms and tornadoes. The filing and payment deadline is postponed until May 6 in parts of Illinois, May 19 in parts of Georgia and Missouri, and May 27 in parts of Arkansas.

    You may like these other stories...

    IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
    Legislation coming out of Washington just might reduce homeowners' burden for disaster insurance. It's a topic very much on everyone's minds since the mudslide in Oso, Washington. The loss of human life was...
    Divorce is hard, and the IRS isn't going to make it any easier. The IRS generally says "no" to tax deductions that might ease the pain of divorce. In certain circumstances, however, you might be able to salvage...

    Upcoming CPE Webinars

    Apr 22
    Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
    Apr 24
    In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
    Apr 25
    This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
    Apr 30
    During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.