File on Time Even if You Can’t Pay

Do you owe more tax than you can afford to pay when you file? If so, don’t fail to take action. When you do not file and pay your taxes on time, you will be charged interest on any unpaid balance, and you may also be subject to penalties, such as the failure-to-file and failure-to-pay penalties. Here is what to do if you can’t pay all your taxes by the due date.

File on time and pay as much as you can.  You should file on time to avoid a late filing penalty. Pay as much as you can with your tax return. The more you can pay on time, the less interest and late payment penalty charges you will owe.

  • The combined penalty is 5% (4.5% late filing and 0.5% late payment) for each month or part of a month that your return was late, up to 25%.
  • The late filing penalty applies to the net amount due, which is the tax shown on your return and any additional tax found to be due as reduced by any credits for withholding and estimated tax payments.
  • However, if your return was over 60 days late, the minimum failure-to-file penalty is the smaller of $135 or 100% of the tax required to be shown on the return.

Pay online with IRS Direct Pay.  IRS Direct Pay is the latest electronic payment option available from the IRS. It allows you to schedule payments online from your checking or savings account with no additional fee and with an immediate payment confirmation. It’s, secure, easy, and much quicker than mailing in a check or money order. To make a payment or to find out about your other options to pay, visit IRS.gov/payments.

Pay the rest of your tax as soon as you can.  Interest charged on any unpaid tax compounds daily from the due date of the return (without regard to any extension of time to file) until the date of payment.

  • The interest rate is the federal short-term rate plus 3%.
  • The federal short-term rate is determined every three months.

Use the Online Payment Agreement tool.  You don’t need to wait for IRS to send you a bill to ask for an installment agreement. The best way is to use the Online Payment Agreement tool on IRS.gov. You can even set up a direct debit installment agreement. When you pay with a direct debit plan, you won’t have to write a check and mail it on time each month. And you won’t miss any payments that could mean more penalties.

Don’t ignore a tax bill.  If you get a bill, don’t ignore it. The IRS may take collection action if you ignore the bill. Contact a Dallas CPA right away to talk about your options. If you face a financial hardship, the IRS will work with you.

  • If after five months you still have not paid, the failure-to-file penalty will max out, but the 0.5% failure-to-pay penalty continues until the tax is paid, up to 25%.
  • The total penalty for failure to file and pay can be 47.5% (22.5% late filing and 25% late payment) of the tax owed.

In short, remember to file on time. Pay as much as you can by the tax deadline. Pay the rest as soon as you can. A Dallas CPA can work with you to figure your best options for payment.

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