Some people wait until the day that the Internal Revenue Service (IRS) stops accepting tax returns to file their annual paperwork. Occasionally, those last-minute filings will come with a surprise balance due. Most employed adults tend to receive a refund when they file their income tax returns. Their employer withholds enough from their paycheck each week to cover what they owe and then some. When they file their return, the IRS ends up refunding some of what they paid. Most people, therefore, anticipate receiving a sizable refund when they submit their tax returns.
However, some people learn after filling out their income tax return for the year that they may owe hundreds or thousands of dollars. The average family cannot simply absorb a tax bill that may amount to several weeks of income for the household. What happens when someone owes taxes but cannot pay the full amount owed at once?
The IRS will accept installment payment plans
Ideally, everyone who owes money to the IRS for federal income taxes will retain sufficient funds to cover those amounts due by the annual tax filing deadline in April. However, for the thousands of taxpayers who discover a balance due when filing their taxes or after receiving notice from the IRS, there simply won’t be enough funds on hand to cover the tax debt all at once.
Those who need to cover a tax balance can propose an installment payment plan by submitting paperwork to the IRS explaining how they intend to pay the balance. Typically, there needs to be a commitment to a specific amount and a specific timeline for the payments. The IRS may approve the payment plan or may reject it. They may also suggest alterations to it. The faster someone pays, the less they will have to worry about paying interest and penalties, which can add up very quickly.
Prompt communication and accurate paperwork are key in a tax debt scenario
When someone has an outstanding balance with the IRS, numerous small mistakes can put them at risk of enforcement efforts. The IRS can come after personal property or future wages.
In some cases, tax debts can lead to criminal prosecution. Those who recognize the issue and move quickly to address it, potentially with the help of a legal professional, will be in a better position than those who try to delay addressing their tax issue or simply hope the IRS won’t notice.
Proactively suggesting a payment plan is one of the more common ways for people to take control of their current income tax debt. Individuals who are concerned about an outstanding balance can also seek legal guidance at any time.