When you get your final tax bill for the year, you may find that you still owe money. If you can’t afford to pay this bill in one go then you can put in an application to pay in installments.
These applications are generally approved by the IRS if you owe less than $50,000 for the combined tax, penalties, and interest.
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What Should I Do If I Can’t Make My Tax Payment On Time?
When you are filling out your tax return, you may notice that you owe more money in taxes than you can afford to pay right now.
What should you do?
Firstly, you should try to file your taxes on time – failing to do so will only increase the amount of money you will owe the IRS.
Then you should put in an application for a payment extension or an installment payment plan.
Do I Qualify For Installment Payments?
Most people will qualify for an installment plan if they cannot pay their tax bills on time.
If you are looking to apply for the shorter payment plan (up to 180 days) then you should owe less than $100,000 in combined tax, penalties, and interest.
If you want to apply for the long-term payment plan (no time limit) then you will need to owe the IRS less than $50,000 in combined tax, penalties, and interest.
The application process should be smooth as long as you do not owe the IRS more than stated above.
How To Apply For An Installment Payment Plan
Applying for an installment plan will be quicker and easier if you do it before the end of the tax year. This will also mean that you can start your repayments earlier and pay less in interest overall.
If you realize you need to apply for an interest payment plan then you can apply in person, via mail, over the phone, or online.
The easiest and cheapest way to apply for an installment plan is to apply online. You can also make your payments online instantly at no extra charge.
Plan Options
There are two installment payment plans available and there are two different ways to pay. We will cover all of these options in this section.
Short-Term Payment Plans
- Length: spread your payments over a maximum period of 180 days (6 months)
- Cost of Setup: $0
- Additional Payments: Penalties and interest accrued will be added until payment is made in full
If you owe the IRS up to $100,000 (in combined tax, penalties, and interest) then you can spread your payments over up to 6 months. The payments will be monthly.
As you make your payments, 0.5% of your tax bill will be charged as a late payment fee, and you will also have to pay 3% interest on the money you owe. This will end at the end of the 6 months or earlier if you pay off your bill sooner.
Long-Term Payment Plans
- Length: Minimum of 7 months, with no maximum
- Cost of Setup: $31 setup fee (low income: setup fee waived)
- Additional Payments: Penalties and interest accrued will be added until payment is made in full
If you owe the IRS up to $50,000 (in combined tax, penalties, and interest) then you can spread your payments over as many months as you need to. The payments will be monthly.
As you make your payments, 0.5% of your tax bill will be charged as a late payment fee, and you will also have to pay 3% interest on the money you owe. This carries on until you pay your bill in full.
Add Direct Debit Payment To Plan
- Cost: $130 setup fee (low income: $43 setup fee that may be reimbursed if certain conditions are met).
To have your payments taken from your bank automatically every month, you can set up direct debit payments. Setting up these payments does cost money but they will make sure you’re not fined for missing a payment in the future.
If you do not set up direct debits you will need to make your payments over the phone, by mail, or online each month.
Can I Revise An Existing Plan?
Yes, if you want to you can make adjustments to your current payment plan.
This will cost you $10, if you qualify for low income then you will be reimbursed the money once your planned changes have been approved.
You will need to adjust your plan if you change your bank account, want to change your monthly payment amounts, want to change your monthly payment date, and if you want to convert to a direct debit plan (you will have to pay the setup fee on top of the adjustment fee).
Can Businesses Pay Their Tax Bill In Installments?
There is an installment payment plan option for businesses as well.
Businesses can apply for a long-term payment plan that will cost them $31 to set up (and an extra $130 if they want to set up direct debit payments).
This payment will allow them to spread out their payments for as long as they want. Also, 0.5% of your tax bill will be charged as a late payment fee, and they will also have to pay 3% interest on the money they owe.
This carries on until they pay your bill in full.
Summary
If you want to pay your tax bill in installments you can.
The best way to set this up is to apply online before the end of the tax year. It is recommended that you set up a monthly direct debit so that the payments are automatically made for you.
You can apply for a short-term payment plan, 180 days for up to $100,000. Or a long-term payment plan for up to $50,000. The long-term payment plan has no time limit.