"Did You Know?" #13
DID YOU KNOW There are collection alternatives to balances due to the IRS?
It’s estimated that about a quarter of taxpayers will owe money when they file their 2023 taxes. There are many options for paying this balance due. If you can’t pay the balance in full, the very worst option is to do nothing. Yet for some reason, the IRS can easily scare people into avoidance. Many balance-due notices go unopened or end up in the recycle bin for that reason. But the sooner you deal with the balance due, the more options you have. And the sooner you address the balance due, the less penalties and interest will accrue.
The best option is to file and pay in full by April 15th. There will be no penalties and no interest.
The next best option is to file your tax return by April 15th so you don’t get the LATE FILING PENALTY, and then you can work with the IRS for the appropriate collection alternative. There will be FAILURE TO PAY PENALTIES and INTEREST that start to accrue after April 15th.
If you just can’t file your tax return by April 15th, you will need to ask for an extension. This will give you until October 15th to file your return without the failure to file a penalty. You are still required to pay the balance due by April 15th, so FAILURE TO PAY PENALTIES and INTEREST will start to accrue after April 15th.
The very worst option is to not file on time and not pay on time. There will be both FAILURE TO FILE and FAILURE TO PAY penalties, plus 8% INTEREST that begin accruing after April 15th.
What are these collection alternatives? That will depend on your specific financial circumstances. Here is a summary of some options available.
Installment Agreement. You can enter a short-term agreement (5 months) or a long-term agreement (up to 72 months) to pay the IRS. The failure to pay penalties and interest will accrue until the balance is paid in full, and the IRS will keep your refunds until the balance is paid. But, generally, the IRS will not do further collection as long as you keep making your payments on time.
Currently Not Collectible. This is often referred to as “Hardship Status.” If your monthly income is less than your necessary living expenses (rent, utilities, transportation, food) the IRS may agree to pause collection activity until you can make payments. You will still owe the balance, the penalties and interest will continue to accrue, and your future refunds will still be applied to the balance, but the IRS will not actively try to collect the balance.
Offer in Compromise. If you qualify for Currently Not Collectible and you have few assets, very little cash, investments, home equity, etc., you can ask the IRS to “Compromise” your balance due to a smaller amount. This is not as easy as the late-night television commercials lead you to believe, but it can be done.
If you think there is a mistake and you shouldn’t owe the balance due, there are other options available to you but that’s the topic of another blog.
If you find that you need a collection alternative, the Neighborhood Christian Legal Clinic Low-Income Taxpayer Clinic (LITC) may be able to help you! Call us at 317-429-4131 to schedule an intake.