Unable To Pay Taxes? Can't Pay IRS Taxes? Various Options For You
Whether you have been assessed with a tax bill that you can't pay or you have a tax filing coming up and you know you will not be able to afford the taxes due, your options are about the same. Owing the IRS and avoiding them is a big deal, but if you owe the IRS and you are willing to work with them on a resolution, then things can go smoothly. The IRS realizes that there are times when taxpayers cannot pay their taxes and the IRS is willing to work with you. The IRS has their own programs, rules, and payment plans for taxpayers.
The IRS realizes that not all cases are the same when someone can't pay their taxes. For this reason they have come up with many different alternatives so that no matter what financial and personal situation the taxpayer is in, they will be able to fall into one of the alternatives. The alternatives that the IRS offers range from short term extensions of paying, to allowing the taxpayer to negotiate the taxes owed for a fraction of the total amount. Not just anyone can pick which method they want to use but must prove to the IRS that they meet specific criteria in order to be considered for specific methods.
Below are some common alternatives to paying your IRS taxes in full. Some methods are IRS sponsored and others are not. If you choose to use an IRS sponsored method you must be sure you meet the specific requirements set forth by the IRS. No matter what you do, always make sure you file first, even if you cannot pay your taxes in full.
IRS Sponsored Alternatives to Paying Taxes in Full
- IRS Installment Agreement: The IRS offers multiple forms of installment agreements. All the installment agreements are similar in the fact that they allow you to pay off your taxes owed in monthly increments. The main different between them is the period in which you must pay back the taxes and the amount of taxes you owe. Below are the various forms of installment agreements.
- Guaranteed Installment Agreement: This is the easiest form of installment agreement to obtain. It is only for those taxpayers that owe less than $10,000 in taxes and can pay back the entire amount in 3 years or less.
- Streamlined Installment Agreement: This installment agreement is for taxpayers that owe $25,000 or less (now $50,000 with Fresh Start program). With this payment plan the taxpayer has to pay back all the taxes owed (including interest and penalties) in a period of 60 months or less.
- Financially Verified Installment Agreement: This is what must be used for taxpayers that owe more than $50,000 in taxes. These are trickier to obtain because you must provide detailed financial statements to the IRS to prove you have the means to make the required payments in order pay back the taxes owed.
- Partial payment Installment Agreement: A partial payment installment agreement is available to those taxpayers that cannot make the required monthly payments required with the other forms of installment agreements. In order to qualify for this type you must prove to the IRS that you cannot pay the minimum and must submit detailed financial statements. If approved you will pay a smaller monthly amount.
- Hardship Status: Hardship status is when the IRS declares you temporarily not collectible. The IRS has guidelines it follows as to how much individuals need to live (funds to cover basic necessities such as food, clothes, rent, transportation, etc) and if you fall below that amount they can put a temporary hold on your account. In order to qualify for this you must prove to the IRS your financial situation by filling out detailed financial statements for them. Once the IRS reviews your financials and determines that if you were to pay the taxes owed it would create economic hardship on your part, they will put you on hardship status. Once on hardship status they will check back with you every few months to every couple years to see if your financial situation has improved enough in order for you to pay.
- Settle Taxes With an Offer in Compromise: An offer in compromise is a tax settlement method created by the IRS that allows taxpayers in very poor financial situations to negotiate the taxes they owe and settle for less. In order to qualify for this you will need to prove to the IRS that the amount of tax assessed was not correct or there is doubt as to your ability to ever be able to pay back the entire tax amount owed. This is a highly sought after tax settlement method and the IRS is very strict with who qualifies. In order to qualify a taxpayer must prove that the amount that they want to settle for is equal to or greater than the amount the IRS would ever expect to collect from them.
Non IRS Sponsored Alternatives to Paying Taxes in Full
- Borrow From Family & Friends: Having family and friends to help you with your tax problems is one of the last methods you should consider. For many people this can be an easy solution because it gets around having to deal with the IRS but sometimes it is best to just deal with the IRS and work with them on an agreement that works for you financially. There are only a few times where it can be OK to go to family and friends to help. The most common reason is if you expect to have a payment coming in the near future that will cover 100% of your tax liability but you won't receive that money until after the due date for taxes. If you are unsure of when you will receive that payment it can be best to use a payment plan instead.
- Bankruptcy: If you are considering bankruptcy for the sole purpose of getting out of taxes owed, this may not be the best option. Bankruptcy can severely hurt your credit score for many years to come, while using one of the methods above will not and you may get a more favorable outcome than through bankruptcy. There are two main types of bankruptcy and the taxes owed are treated differently in each.
- Chapter 7 Tax Bankruptcy: With this type of bankruptcy your assets are liquidated and those amounts will be used to satisfy taxes owed. Any remaining assets after the liquidation will be discharged unless qualifications are not met. If certain qualifications are not met then taxes will need to be repaid after the bankruptcy process is over.
- Chapter 13 Tax Bankruptcy: This is the most common form of bankruptcy. With this form of bankruptcy some taxes can be forgiven but typically the amounts will be required to be paid back through a payment plan. Normally the assets will not be required to be liquidated because the taxpayer's income will finance the payment plan.
No matter what your financial situation you can find some way to pay the IRS. One important note is that no matter how much you owe even if you cannot pay it is always important to file your taxes. Filing your taxes can prevent large penalties from adding up. Not being able to pay is not considered a big deal to the IRS because of all the various options they offer to taxpayers. So if you owe taxes and can't pay, start working with the IRS right away to get your problem figured out and to prevent unneeded penalties and interest.