Believe it or not, the IRS is still opening mail and processing tax returns that stacked up during the COVID-19 pandemic. Another IRS task that backed up over the last year is sending notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, don’t panic. Open it right away, read it carefully, and verify the contents with your tax records.
Even if the notice is due to an IRS mistake, you need to respond to get your tax records corrected. But what if the notice is accurate and you do owe taxes to the IRS? How can you pay?
The IRS offers several payment options, depending on your situation:
- Pay Now – Paying the full balance online is free if you can have the balance due debited from the bank account of your choice. Paying by credit card is an option but the fees are high, so make sure that you read the fine print first before making your decision. https://www.irs.gov/payments/online-payment-agreement-application
- Short Term Payment Plan – If you can pay the amount due in 120 days or less and the total amount due is less than $100,000, this could be the best option for you. No set-up fee is charged, and you can pay via direct debit from the bank account of your choice. https://www.irs.gov/payments/online-payment-agreement-application
- Installment Agreement – If you need more than 120 days to pay, this option requires a set-up fee of between $31 and $225. Installment Agreements may require some financial information from you, depending on the amount due. https://www.irs.gov/payments/payment-plans-installment-agreements#costs
- Offer in Compromise – The IRS wants to collect all taxes due but does not want to create a financial burden on taxpayers. An Offer in Compromise allows you to settle your tax debt for less than the full amount owed if paying your full tax liability would create a financial hardship. See if you qualify at https://www.irs.gov/payments/offer-in-compromise.
Other considerations to keep in mind are:
- Payment plan applications are generally easier to get approved for lower tax liabilities due than for large balances.
- The application process differs based on the tax liability outstanding. For example, applications for $10,000 or less are automatically approved as a guaranteed Installment Agreement. Amounts over $50,000 require a more thorough review to determine if assets can be liquidated to pay the taxes due.
The IRS has been catching up with its pandemic backlog, including sending out notices to taxpayers who have outstanding tax balances. If an IRS notice arrives in your mailbox, check it against your records. Really owe what it says? Remember that the IRS offers several payment options, depending on your situation.