Sometimes, an individual may owe a significant amount and value of taxes to the IRS (Internal Revenue Service). It may be due to various reasons that they cannot pay it back in the stipulated time. The taxpayer would inevitably become exceedingly concerned and disoriented in such a situation. They may think and conclude that not paying the taxes or not filing the due amount would get them out of the problem. The individuals may very well leave it aside in the hope of the possibility and potential of the IRS ignoring the owed taxes.
However, no such miracles occur in actuality. It is primarily because the IRS is exceptionally thorough in all its records. The organization thoroughly checks the details and information of each taxpayer to find out when their tax liability and payment are due. It implies that no individual can merely leave the issue aside and forget about it.
The IRS implements appropriate penalties if the taxes do not get filed or paid on time.
According to conventional practices and guidelines, the fines consist of the following:
- The IRS applies a 4.5% penalty every month if a taxpayer does not file the owed taxes. It gets placed on the due amount that the taxpayer has yet to pay back to the IRS. The penalty may face an increment of 25% maximum. Like before, it also gets imposed on the due tax amount.
- The IRS applies a 0.5% penalty every month if a taxpayer does not pay the owed taxes. It gets placed on the due amount that the taxpayer has yet to pay back to the IRS. The penalty may face an increment of 25% maximum. Like before, it also gets imposed on the due tax amount.
In worst and extreme cases of non-filing and non-payment, the government can take away the properties and assets of the taxpayer or sentence them to a particular period of jail time.
The strictness of the IRS towards the faulty taxpayers does not imply that it does not provide a solution to such individuals. Suppose an individual cannot pay back their owed amounts. In such cases, the IRS offers a few options that allow a taxpayer to do so appropriately and comfortably.
Let us see what the solutions provided by the IRS are in this article.
The IRS has two choices available to the taxpayers that aid them in paying back the taxes they owe to the organization. They consist of long-term and short-term payment plans. Both the options allocate and offer additional days that the individual can utilize to return the due amount. The long-term payment plan provides an added time of a maximum of six years or 72 months. Similarly, the short-term options offer an extra 120 days for the same purpose.
However, a taxpayer must keep in mind that payment plans cannot eliminate the interests related to the owed taxes. This sum keeps accumulating over time. The payment plans cannot protect an individual from paying off the mentioned amount.
A few specifications come up in a taxpayer’s eligibility for a payment plan. These conditions consist of:
- A taxpayer must file all their taxes on time. On top of that, they must remain up-to-date with each of their previous year’s tax returns.
- The extension offered by the payment plan gets implemented based on the taxpayer’s household income. Thus, the warnings need to be sufficient.
- Suppose a taxpayer stops paying even if theyowe taxto the IRS. In such cases, the IRS can impose and apply a lien on their property, making it arduous to get a loan at an appropriate rate.
- The eligibility criteria for a short-term payment plan states that the taxpayer must owe $100,000 or less, including all their taxes, interests, and penalties.
- The eligibility criteria for a long-term payment plan states that the taxpayer must owe $50,000 or less, including all their taxes, interests, and penalties.
Offer in Compromise (OIC)
An Offer in Compromise (OIC) is a contract or agreement between the IRS and a taxpayer. It permits the latter to pay back less than the entire tax liability. The individual can do so before the collection period for the due amount ends.
An OIC is beneficial for a taxpayer when paying back the entire due amount can result in a financial predicament or crisis. The agreement required an application fee that stands at about $205. It gets reimbursed, waived, or reduced if the taxpayer can qualify for the low-income section.
It is essential to remember that the IRS does not offer the option of OIC to the individuals undergoing a state of bankruptcy and facing its proceedings.
Currently Not Collectible (CNC)
Currently Not Collectible (CNC) refers to an IRS status used to depict a taxpayer’s inability and failure to pay off the owed taxes. It applies when the issue arises due to some instance or circumstance of the foreseeable future. In such cases, a CNC allows for a temporary delay in the tax collection. It continues for a specific period until the taxpayer’s financial situation improves and stabilizes.
An individual has to provide all required and appropriate proof and documents of their recent or current financial status to the IRS to qualify for a CNC. It should consist of their monthly income, assets, and various expenses.
A taxpayer has one other choice or option. They can charge their owed taxes to their credit card and pay it off using that. However, a convenience fee of about 2% gets imposed for that. On top of that, an individual can choose a credit bank loan or one from the credit union to consolidate their debt.
Borrowing money from these sources allows a taxpayer to pay back the entirety of the due amount. However, opting for these options implies that the debt moves to a comparatively expensive source. Thus, these choices call for a credit card with quite a low percentage rate (APR) or a personal loan at an exceedingly low rate of interest.