If you can't pay, ask the IRS for an installment plan
Once you ask for a payment agreement, collection efforts cease.
You finally got your tax return done and it’s ready to be mailed except for one small thing. You owe a shipload of money and have nothing in the bank. What do you do?
File anyway and send what you can. There’s a penalty for filing late in addition to the interest and penalty for not paying what’s due.
Then run to your bank and borrow against your home equity. Interest on a home equity loan up to $100,000 is tax-deductible, regardless of what you do with the money. But, what if you have no equity in your home?
If you owe less than $25,000 in combined tax, penalties and interest, you can apply online. If you owe more than that, the IRS may require a collection information statement listing your assets, liabilities, sources of income and expenses.
Unless your income is below poverty guidelines, you’ll pay a fee to establish the agreement, normally $105. If you have your installment payments directly deducted from your bank you can cut that fee to $52. Otherwise, you can pay by check, payroll deduction or even credit card.
Miss a payment and it will cost you another $45 to reinstate or restructure your agreement.
The best part?
Once you file the installment agreement request, IRS collection ceases. The IRS will not take any collection actions:
- While an installment agreement is being considered.
- When the agreement is in effect.
- For 30 days after the agreement has been rejected.
- For any period during which a rejected agreement is being appealed.
No collection means the IRS will not levy (a fancy legal word for “take away”) your property. But a lien will probably be filed. Liens prevent any property from being sold without the outstanding IRS debt being paid.
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