true that 75 percent of all taxpayers receive a
refund (according to public IRS data), so what happens if you are in the
other 25 percent and owe? There are many ways to pay your balance due between
now and April 15, starting with the various options to pay it outright. But for
those who can’t (and don’t worry if you can’t - you’re not alone), the IRS
offers payment options. Let’s take a look.
Paying in full – free options
can use the old fashioned method and mail a check or money order. However, this
is the least secure payment method since the check has to get to the IRS and
will be handled by individuals at the payment-processing center. You could have
a keypunch error or other typo, or your check could get dropped, lost, or
stolen from the mailbox. When there’s payment involved, you generally want the
most direct, secure channel possible, but, at the end of the day, mail is a
valid option for paying the IRS. If you’re mailing a check, follow these two
the check or money order with Form 1040-V, “Payment Voucher,” to the mailing address for your state
as listed in the IRS form instructions.
sure the check or money order is payable to the “United States Treasury” andyou put the form number, year and primary social security number in the
memo section of the check. For example, when paying for this year enter “Form
1040, 2012, XXX-XX-XXXX” in the memo section of the check. The memo section is
usually located on the bottom left of the check. If you are using a money
order, write the form number, year and primary social security number in the
bottom corner of the money order. Consider making a copy of the check or money
order for your files.
safer, more secure payment method is an electronic funds transfer directly from
your bank account. You can use this method for Form 1040 payments when your tax
return is electronically filed. You will select a payment date and provide the
Treasury with the bank name, routing number and the account number of the
account you wish to have debited. Payment information will only be used for the
tax payment(s) authorized and will not be disclosed for any reason other than
for processing the payment.
third free option is the Electronic Federal Tax Payment System (EFTPS). This is
a payment account for all types of taxes that uses a secure government website.
The service is convenient, accurate and can be accessed online 24/7. Once
you’re enrolled, you can make any type of federal tax payments online. The
system allows you to schedule individual tax payments up to 365 days in advance
and business tax payments up to 180 days in advance. EFTPS works really well if
you make estimated payments or have multiple types of federal taxes because it
allows you to decide when you will pay your taxes after your tax return is
filed. You can set up an EFTPS account
at www.EFTPS.gov or by calling IRS EFTPS Customer Service at 1-800-555-4477.
Credit or debit card - fee-based options
none of these options work for you, you can always pay with a credit card, but
there are some fees associated with credit card payments. The IRS does not pay
the card fees like merchants do, so you are responsible for paying the card
fees in addition to the tax fees. Fees can range from $2.99 to $3.95 for a
debit card payment to 1.8 – 2.35 percent for credit card payments. You’ll want
to check with your credit card company. All credit and debit card transactions
for tax payments are handled by service providers under contract to the IRS.
Can’t pay in full? Get a loan or set up
a payment plan
you cannot pay in full through any of the above options, the IRS suggests you
exhaust options outside of the IRS and Treasury department. The IRS charges
penalties and interest - with the interest compounded at a faster rate than
banks - making your final bill much higher with IRS than a conventional lender.
you are unable to secure funds through other means, the IRS offers a Payment
Plan. The IRS payment plan has a $105 set-up fee. You can lower the fee to $52
with a direct debit agreement. If your income is below a certain level, you may
qualify for a reduced payment plan fee of $43. This is a one-time fee and is
not part of your payments. You must owe less than $50,000, be able to pay your
balance in full within 72 months and make a minimum $25 a month payment to be
eligible for the IRS payment plan.
get started, complete Form 9465, “Installment Agreement Request,”and either mail or e-file the application. You can do this when you submit
your tax return. When you enter into an installment agreement, make sure you
pay as much as you can when you file your tax return, continue to pay as much
as you can, but be sure to not default on the plan. Contact the IRS if at any
time you are unable to make your monthly payment. If you default on the plan,
the IRS will demand payment in full and can send your account to collection if
you don’t pay. You can generally reinstate the payment plan but the IRS will
assess another set-up fee.
you are in an installment plan, the IRS will hold any future refunds and apply
them to the tax debt until the debt is paid off. For more information on
payment plans visit IRS.gov.
Whatever you choose, don’t hesitate!
you are going to file before April 15 or file for an extension, if you owe, be
sure to take care of that balance. Failure to pay a balance due or establish an
approved IRS payment plan will result in penalties and interest and likely cost
you much more money in the long run than if you worked to find other options at
the front end. Your local Jackson Hewitt is available to help.