Nobody likes unpleasant surprises when it comes to taxes. And if you unexpectedly find yourself owing the IRS hundreds or thousands of dollars that you don’t have, it’s normal to feel the panic start to set in. But we can help.
If you can’t afford to pay your entire tax bill upfront, you aren’t alone. And you have options! Read on to see how TaxAct® can help you set up a IRS tax payment plan that fits within your budget.
What is an IRS payment plan?
The IRS lets taxpayers set up short-term (balance due paid in 180 days or less) and long-term payment plans. In this article, we’ll be discussing long-term plans called installment agreements that allow you to break up your tax bill into more manageable monthly payments.
You can request an installment agreement using Form 9465. When you e-file with TaxAct, we can walk you through the steps to fill out the tax form online.
How to set up a tax installment agreement request through TaxAct
Form 9465 is available in all versions of TaxAct. To complete and file the online payment agreement request form electronically with us:
- Open your tax return and select the Federal tab.
- Under the Federal tab, select Miscellaneous.
- Within Miscellaneous Topics, find and select IRS installment payment plan request.
Once you begin the process, we will ask you some questions and verify your contact information. We’ll ask you to tell us what payment amount you can afford, your preferred payment due date, and whether you would like to set up monthly Electronic Funds Withdrawal (EFW) with your bank information. This option will allow the IRS to automatically withdraw your tax payments from your bank account (savings or checking account) every month via direct debit.
If you’d rather make your payments by payroll deduction, we can help you request that as well by having you print out Form 2159 and mailing it in with your 9465.
When your request is complete, TaxAct will also give you the option to print Form 9465 for your records.
What to do after you fill out Form 9465
Note that filling out Form 9465 isn’t a guarantee that the IRS will approve your payment plan, but as long as you don’t owe an extremely large amount (like tens of thousands), you shouldn’t need to worry too much!
However, in the event your installment agreement request is not approved by the IRS for any reason, you will need to mail in Form 1040-V. Once you set up an installment plan with us, you will be able to print Form 1040-V with the rest of your return when you finish e-filing. But if your installment request is approved, you won’t need to worry about Form 1040-V.
The IRS should let you know within 30 days whether your request was approved or denied, so you won’t have to wait too long.
Check out this page for more detailed information about how to print the forms you need when finalizing your federal income tax return. You can also view the IRS instructions and general info about Form 9465 here.
IRS fees, interest, and late penalties
You should know that the IRS does charge a fee for setting up installment agreements and will charge interest on your unpaid balance. You might also be charged a late penalty until the tax debt is paid in full.
That’s why it’s best to make your monthly payment amount as large as possible — to minimize the amount of interest and penalties you need to pay.
One exception is if you qualify for low-income taxpayer status. If so, your installment agreement setup fee may be waived or reimbursed depending on your payment method.
Can I set up a business payment plan through TaxAct?
At this time, TaxAct is not able to help set up business payment plans for taxes owed. However, we do offer free Electronic Funds Withdrawal where businesses can set up automatic estimated tax payments.
Tips for cutting your tax bill
To avoid getting stuck with a hefty tax bill again, here are a few simple steps you could take to help reduce your taxable income next year:
- Change your withholding on Form W-4 with your employer
- Check if you qualify for the Earned Income Tax Credit (**will link to article once new EITC blog is up)
- Increase your retirement contributions to reduce your taxable income
- Find unique ways to gift throughout the tax year
- Boost your child’s college fund
- Take advantage of tax-free savings with FSA or HSA health plans
What happens if I don’t pay my tax bill?
When you don’t pay your taxes, the government can issue a legal claim against your property called a tax lien. If you fail to pay your federal taxes without setting up an installment agreement, the IRS may take action by sending you a notice of federal tax lien.
If you continue to neglect to pay off tax debt, the IRS can also levy your property to settle the debt. This allows the IRS to garnish wages, seize and sell your property, or take the money in your bank accounts. That’s why it’s imperative to make payment arrangements with the IRS if you can’t pay your bill right away.
TaxAct is here to help
Owing back taxes isn’t an ideal situation, but we want you to know that you have options. There’s no need to break the bank and pay the full amount if you can’t afford it. If you find yourself with an unmanageable tax bill this tax year, e-file with TaxAct to conveniently request an IRS installment payment plan when filing your federal tax return.
This article is for informational purposes only and not legal or financial advice.