I just completed my return and find that I
owe the IRS money. What should I do?
You should file your return even if you can't pay all of the amount
you owe. File by April 15, and pay as much as possible. By filing on time,
you avoid the late filing penalty. By paying as much of the amount you
owe as possible, you reduce the amount of interest and late payment penalty
that you will owe. For more details on interest and penalties, refer to
Tax Topic 201, The Collection Process,
or Publication 594, Understanding the Collection Process.
Can I ask to make installment payments on the
amount I owe?
Yes. If you cannot pay the full amount due with your return, you
may ask to make monthly installment payments. However, you will be charged
interest and a late payment penalty on the tax not paid by April 15, even
if your request to pay in installments is granted. Before requesting an
installment agreement, you should consider less costly alternatives such
as a bank loan. For more details on installment payments, refer to Tax
Topic 202, What to do if You Can't Pay Your Tax, or Publication
594, Understanding the Collection Process.
What kind of penalties and interest will I be charged for paying and filing my taxes late?
Interest, compounded daily, is charged on any unpaid tax from the
due date of the return until the date of payment. The interest rate is
the federal short-term rate plus 3 percent. That rate is determined every
three months. In the last five years, the interest rate on underpayments
has varied from 7% to 10%. The current rate of 9% has been in effect since
July 1, 1996.
In addition, if you filed on time but didn't pay on time, you'll
generally have to pay a late payment penalty of one-half of one percent
of the tax owed for each month, or part of a month, that the tax remains
unpaid after the due date, up to 25 percent. The one-half of one percent
rate increases to one percent if the tax remains unpaid after several bills
have been sent to you and the IRS issues a notice of intent to levy. If
you owed tax and didn't file on time, the penalty is even higher. The combined
late-filing and late-payment penalty is five percent of the tax owed for
each month, or part of a month, that your return was late, up to 25 percent.
And if your return was over 60 days late, the minimum penalty is the smaller
of $100 or 100 percent of the tax owed.
For current interest rates go to News
Releases and Fact Sheets and find the most recent Internal Revenue
release entitled Quarterly Interest Rates.
Also, see Tax Topic 653.
Can my refund be used to pay other debts?
Under the law, state and federal agencies refer to the IRS the names
of taxpayers who are behind in their support payments, taxes, and loans.
Your tax refund may not be refunded to you if you are delinquent in child
support payments or you have a past due federal debt (such as a student
loan). Therefore, your refund may be used to pay other debts you owe. For
additional information, refer to Tax Topic 203,
Failure to Pay Child Support and Other Federal Obligations.
I am unable to pay my delinquent taxes. Will
the IRS accept an "offer in compromise?"
An offer-in-compromise may be an alternative for resolving your tax
delinquency. The IRS accepts an offer in compromise to settle unpaid accounts
for less than the amount owed when doubt exists as to whether you owe the
liability or when there is doubt that the liability can be collected in
full and your offer reasonably reflects collection potential. Refer to
Tax Topic 204, Offers-in Compromise, for
additional information.
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