What Types of Payment Options are Available for People Owing Taxes?

It can happen to the best of us. You file your income tax return, hoping for a nice pay-off after all your hard work, only to find that you actually owe money to the IRS. While learning this fact can be disappointing, it can also cause major problems for those without a lot of disposable income. If money is already tight and you’re thinking you might have to choose between paying taxes and keeping the lights on, don’t worry! The IRS understands that not everyone has extra money just sitting around and, fortunately, it offers various options for payment.

If you meet certain qualifications, you may be able to pay your taxes in monthly installments. For many people, paying a smaller monthly fee is a whole lot more manageable than paying a large sum of money all at once. One option that you have, providing you have a bank account, is to have the IRS automatically take out monthly payments of a certain, pre-agreed upon amount, dependent upon how much you owe. You will have to pay a fee of $52.00 in order to get this option set up and started, and you should also take care to remember when the charge is assessed each month so that you will be prepared for it. If you don’t have sufficient funds in your account at the time of the withdrawal, you will likely be forced to pay an overdraft fee, which can get you into even more financial trouble.

For those who don’t have a bank account or who don’t want to deal with seeing their money be taken from them each month, it’s possible to simply have your employer take the owed payments out of your paycheck. For many people, it’s easier if they never have to see the money they’re “losing,” since this allows them to get use to a slightly lower income. Unfortunately, however, the fees for setting up this type of arrangement are higher than those associated with a direct debit arrangement. You will be required to pay a one-time fee of $105.00.

If you are financially responsible and capable of managing your money on your own, you can do things the old fashioned way and take care of your tax bill on your own. All you have to do is send in a check or money order when you receive your bill or, for something a little more modern, pay using the electronic federal tax payment system. Additionally, you can also make payments using a credit card, either online or over the phone, or through the Online Payment Agreement system. These options give you more control over when you pay, but beware! Missing a payment often results in a late fee, and it’s easy to get in over your head if you miss several payments. Again, this option is only for those responsible enough to manage their budget and to regularly get payments in on time.

Have a tax question? Ask one of our tax professionals.