Short-Term IRS Payment Extension Options
If you don’t have the money to pay a current tax bill, you can get away with paying about 55 days late, without penalties—just interest. This is not an official IRS payment plan, but it can work. Here’s what you need to know.
Filing on Time
Even if you don’t have the money to cover your tax liability, it’s critical to file on time. The IRS charges a 5% failure-to-pay penalty for every month that your tax return is late, and the agency assesses that charge the very first day of every late month.
For example, if you file your tax return just a day late, the IRS charges you 5% of the tax due as a penalty. Because of this, even if you don’t have the money, you should file your tax return anyway.
Can’t file your tax return on time? It is easy to get an extension from the IRS. An accountant can help you. Most tax prep software lets you select that option so you don’t have to do it manually.
By filing for an extension, you avoid the late filing penalty, but you may face a failure-to-pay penalty. Luckily, that’s only half a percent per month—much lower than the failure-to-file penalty.
If you pay 90% of the tax you owe by the April deadline, the IRS won’t charge the failure-to-pay penalty on the remaining balance. You would only incur interest on the remaining 10% tax you owe. The remaining taxes would need to be paid by October 16th (six months from the original deadline filing deadline).
Partially Paying to Buy Time
If you want a short-term IRS payment extension, pay as much as possible when you file your return or when you ask for a filing extension. Then, continue to send the IRS payments as quickly and as often as you can.
On the 45th day that your tax payment is late, the IRS will send you an official letter. That letter will detail how much you owe, and it will also include any interest and penalties that have been added to the balance.
At this point, you have ten days left before things get serious. Ten days after sending the letter, the IRS can issue a tax lien and make a plan to seize your property. As long as you pay the rest of your tax bill within those ten days, you avoid all those repercussions. However, the situation may be different if you owe less than $10,000.
Tax Bills Under $10,000
About five years ago, the IRS put a Fresh Start Initiative into place. As part of that, the IRS stopped issuing liens on most tax debts for less than $10,000. As a result, if you owe less than $10,000, you will receive a letter 45 days after your taxes are due, but in most cases, the IRS will not issue a lien ten days later.
If you have a small tax debt, you can usually take longer than 55 days to pay it without suffering any serious repercussions. However, to be on the safe side, you may want to apply for the 120-day short-term IRS payment extension.
120-Day IRS Payment Extension
The IRS has an official 120-day payment agreement. As long as you owe less than $100k in combined tax, interest, and penalties, you can apply for this online. Use the Online Payment Agreement application—it’s the same application you use to apply for an installment plan.
There is no fee for setting up a 120-day IRS payment extension. However, your unpaid taxes will continue to accrue interest during this time. In most cases, you pay less penalties and interest with this plan than someone who chooses an installment agreement.
IRS Hardship Case Payment Extensions
In rare cases, you can also qualify for a six-month hardship extension to pay the taxes owed. To qualify, you need to show that paying your taxes when due would result in a severe hardship. The IRS stresses that this cannot be a mere inconvenience. Rather, paying on time must cause a true financial loss. To apply, use Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship.
If Form 1127 is approved, you will have the ability to make a payment at a later date without any failure to pay penalty tacked on to your balance. Again, only interest charges that accrued from the original due date would be applied to the balance.
In certain cases, if you are out of the country, the IRS will approve an extension for six months. If the amount determined is due to a deficiency, it is usually limited to 18 months from the due date. The IRS, in extremely rare cases, will extend previous extensions another 12 months. If you are truly facing an extenuating financial situation, you may want to look into getting classified as uncollectible.
To sum it up, you can pay your taxes a bit late without incurring a lot of serious penalties and without filing any extra paperwork. Just remember to always file on time and pay as much as you can when you file. To get even more time, you may want to apply for the official 120- day extension.
If your taxes are too late for these options to work, fill out the form above and get help for your situation.