Deadline is approaching: what to do if you can't pay your taxes on time

April 17th is the deadline for filing and paying taxes. But not everyone can pay them on time. Fortunately, the Internal Revenue Service (IRS) offers several payment options after this date. What to do, said the publication Yahoo!.

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“The IRS has programs like installment and deferred payment,” said Nancy DeRusso, head of financial wellness at Goldman Sachs Ayco Personal Financial Management. “But if you know you can’t pay, your best bet is to file a return and work with the IRS to get an installment plan or you face huge fines.”

Request a repayment plan

If you're facing an outstanding tax debt that you won't be able to pay off anytime soon, there's no need to panic.

According to the IRS, you may qualify for an online payment plan that allows you to extend your payment due date and pay off your debt at your own pace. But don't confuse this with tax deferrals.

“Some people ask for a tax deferral thinking they are getting a tax deferral, but those are different things,” DeRusso said.

To qualify for a tax deferral, you must file online application (OPA) before the tax deadline, which may be different from April 17 depending on your state or circumstances.

As soon as you submit your application, you will immediately receive a notification whether your payment plan has been approved. Online payment plans can be short term or long term.

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“Short-term repayment plans offer a repayment period of 120 days via OPA. This option is available to taxpayers who owe less than $100. Accrued penalties and interest apply until the balance is paid in full,” explained Eric Bronnenkant, head of tax at Betterment.

Short-term payment plans are available for up to 180 days, but you must call the IRS at 800-829-1040 and file a formal application through Form 9465to get an installment agreement. The same rule applies if you need to request an extension plan that exceeds 180 days.

"A taxpayer can also apply for an installment agreement if they owe less than $50," Bronnenkont said. - There are usually application fees, but they can be reduced for low-income taxpayers. Accrued penalties and interest are applied until the balance is paid in full.

The IRS offers several ways to make monthly payments, including direct payments from your bank account, automatic payroll deductions, EFTPS payments, and credit card payments over the phone or online.

You can also pay by check, money order or cash at a retail partner. For those who pay by check, please be aware of postage delays. The IRS processes all mail in the order in which it was received.

Suggest a compromise

Another way to pay off your tax liabilities could be a compromise proposal, Bronnenkant said. This is an agreement between the IRS and the taxpayer to settle tax liabilities for less than the accrued amount.

Compromise can take a long time. But if the IRS does not reject, return, or withdraw your offer within two years from the date of receipt of the postmark, the offer will be accepted.

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Reasons the IRS might accept your offer include "enforceability doubts," meaning the IRS has determined that you don't have enough income to pay off your debt in full. Your case may also be accepted if the IRS finds that you can pay off your balance, but this will cause serious financial hardship.

“This option is not easy to qualify for and anyone considering it must pass preliminary assessmentBronnenkont remarked. - The factors that are taken into account are solvency, income, expenses and equity. There are usually application fees, but they can be reduced for low income taxpayers.”

Don't pay with a credit card

Having tax liabilities can put a strain on your finances, but don't pay them with a credit card, advises Rus Garofalo, founder of Brass Taxes.

Since the Federal Reserve intends to increase the base interest rate up to six times this year, your credit card rate will also increase.

You should pay off your state debt first, Garofalo says, because it has higher interest rates than the federal government. Depending on the year, your federal debt can carry an interest rate ranging from 3% to 5%, which is often much lower than state interest rates.

“When it comes to federal government debt, I like to tell people it's a good credit card with a low interest rate. They will give you up to six years to pay your taxes if you don't ignore them for a long time,” Garofalo explained. “They won’t do anything to you, they just want to get money. They have very few employees, so the inspectors won't chase you."

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