Tax season is over. At this point, any unpaid taxes for 2014 will be treated as back taxes. If you do owe taxes for 2014 or for any year before that, you can pay them in monthly installments. Even those who filed for an extension, but could not pay their entire tax bill, an Installment Agreement can be requested.
There are different types of Installment Agreements, each plan based on the amount of tax debt owed. The less you owe in back taxes, the easier it is to qualify for an installment agreement. You can apply for an online Installment Agreement if you owe $50,000 or less in back taxes.
Some of the important points to consider before applying for an Installment Agreement are the associated penalties and interest, as well as the rules of the agreement. With an Installment Agreement, you get more time to pay your back taxes, but you will pay more because of penalties and interest.
- The penalty for a late payment is charged at 0.5% each month on the amount of back taxes that remain to be paid.
- Interest is charged at the federal short-term rate plus 3% for a year. It is compounded every day.
To reduce your penalties and interest, you can pay more initially so that your total back tax amount is lower. Also, if you can, pay the back taxes in as few months as possible.
Once you have reached an agreement with the IRS, you will be required to cover the minimum payments each month. Any tax refunds will be offset, or taken, to pay your tax debt.
If you fail to make a payment for any month, the IRS is likely to terminate your agreement. If you cannot make the minimum payment for a particular month, contact the IRS and inform them of your situation.