If you have always paid your taxes in full or never owed any taxes, you will never know about the IRS tax collection process or their options.
However, if this is your first-time owing money to Uncle Sam, this may be a scary situation to navigate. You are probably wondering where you can find a flow chart, what are your options, and how does this process work.
Well, today, we are going to go over what the process will be like when you cannot pay your taxes in full while you file your tax return.
IRS Collection Process Timeline in Nevada
One of the first notices you will receive from the IRS after you did not pay your tax bill will be a letter. This letter will explain your outstanding balance and it will demand that you pay it in full.
This letter will also include how much you owe, along with any penalties that you received on your outstanding balance from when your tax bill was due.
You should note that your outstanding balance is going to have interest that compounds not only a monthly, but a daily late payment as well. So, it is going to be best that you pay your tax bill completely as soon as you can to help minimize all interest and penalty charges.
Methods to Pay Your Outstanding Tax Balance
If you are left with an outstanding tax bill and you do not know where to turn or how to pay for it. You should know there are always some conventional and unconventional options.
You can always investigate getting a cash advance on your credit cards, a personal loan from the bank, or even borrow money from your friends or relatives.
If all those options are not something you can do, you are in luck. The IRS has a few different options that can help you pay off your outstanding Tax Balance.
You should know before you cannot pay your balance in full, that you should investigate the IRS monthly installment agreement plans. In most cases, you can get on an installment agreement, by filling out the Online Payment Agreement Application or Form 9465 with your tax return.
You can also request an installment agreement when you call the IRS as well. You should keep in mind that there may be a small user fee to set up your monthly agreement as well.
But if you are coming from a low-income family, the fee is typically either waived or reduced.
How to Get on an Installment Agreement?
If you are a taxpayer that cannot pay your taxes in full, you are looking into the installment agreement. An installment agreement is where you will have the chance to pay off your outstanding balance throughout time rather than in one large lump sum.
When you complete your application online, you will get an immediate approval or denial of your application.
How Do I Know I Will Qualify?
You should know that your certain tax situation is going to solely determine what payment options you will eligible for. What we mean by payment options is whether you need to pay in full, have a short-term plan (where you will need to pay in 120 days or less) or a long-term plan (which is known as an installment agreement)
You should know that you will be eligible to apply for any of these above options online if you meet the following criteria:
- For a long-term payment plan, you must owe under $50,000 in tax, interest, and penalties
- For a short-term payment plan, you must owe under $100,000 in tax, interest, and penalties
If you are an independent contractor or a sole proprietor, you can apply as an individual for the payment plan. You do not need to apply for a business payment plan.
What Do I Need to Apply?
Technically when applying to get put on a payment plan, you do not need much, but you will need the following items:
- Your name as it appears on your tax return
- Your email addresses
- Address as it appears on your tax return
- Your date of birth
- Your filing status
- Either your Individual Tax ID Number or your Social Security number
What is the Cost?
If your application was approved for the payment plan, then you will have the choice of one of the following to be added to your current outstanding tax bill.
Please note: If you owe more than $25,000 you will be required to have automatic payments taken from your checking account on a monthly basis.
If you pay the full amount that is owed today, you will not be charged a setup fee and you will stop incurring interest and penalties. You will need to pay your balance directly from your savings or checking account. You can also pay by money order, check, or your credit or debit card.
Please note: There will be charges if you choose to pay using either your debit or credit card.
Short-Term Payment Plan
If you applied for the short-term payment plan, then you have 120 days to pay the remaining balance. There is no fee for this plan. You will have the same options to pay your bill as you would in the pay now plan above.
Long-Term Payment Plan
The long-term payment plan has two different options underneath it that you can choose from.
If you are low-income, there will be no fee. If you are not low-income there will be a $31 setup fee. There will also be added interest and penalties until you fully pay off your outstanding balance. You will pay a monthly amount that is automatically debited from your checking account each month. If you owe more than $25,000 in taxes, this option is required.
If you are a low-income, you will have a setup fee of $43 which can be reimbursed under certain situations. If you are not low-income, you will have a setup fee of $149. There will also be added interest and penalties until you fully pay off your outstanding balance.
What Happens if I Do Not Apply for an IRS Payment Plan?
If you fail to make any sort of arrangement with the IRS, the IRS will have no choice but to take other actions to collect the outstanding taxes you owe. Typically, the IRS will do the following:
- File a Notice of Federal Tax Lien
- Serve you a Notice of Levy
- Or take your future refund (next tax year)
What is a Federal Tax Lien?
The Federal Tax Lien is going to be a legal claim on your property. This lien will also include property that you get AFTER the lien happens as well.
The only way you will get a Federal Tax Lien is if you fail to pay your taxes. The IRS can also file what they call a Notice of Federal Tax Lien in your public record, which will notify all your creditors that they have a claim against your property. You should know if you have a Federal Tax Lien on your record, it can appear on your credit record a well and this can have a negative impact on your rating.