Paying What You Owe to the IRS 

Taxpayers can’t always pay the balance due when they file their income tax return. Some individuals, for whatever reason, have an outstanding tax balance from one or more prior tax years. The IRS computer automatically sends those taxpayers a notice of the amount due, any penalties, and the accrued interest on the outstanding tax balance. Notices keep coming from the IRS computer until the taxpayer pays or takes other action to address the balance due.

If an IRS notice reporting a tax balance due arrives in your mailbox, don’t panic. Open it right away and read it carefully. Compare the notice with your tax records to make sure that there is not an error. Even if the notice is due to an IRS mistake, you need to respond to the notice to request a correction of your tax records. 

But how can you pay if the notice is accurate, and you do owe more in taxes? The IRS offers several payment options, depending on your situation:

  1. Pay Now – This is a great option if you can do it, especially with higher interest rates (e.g., 7% for first quarter 2023). Paying the full balance online does not involve a fee if you can have the balance due debited from your bank account. Credit card payments are an option, but the fees are high. Read the fine print first before making your decision. https://www.irs.gov/payments/online-payment-agreement-application
  1. 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. The application process differs based on the tax liability outstanding. Applications for higher amounts require a more thorough review to determine if assets can be liquidated to pay the taxes due. https://www.irs.gov/payments/online-payment-agreement-application 
  1. 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 tax amount due. Again, applications for higher amounts require more review. https://www.irs.gov/payments/payment-plans-installment-agreements#costs
  1. 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.

Taxpayers who receive an automated past due notice from the IRS shouldn’t panic. After checking it over to make sure it is correct, they should go to https://www.irs.gov/payments and review the payment options available based on the amount due and ability to pay. The worst thing to do is to ignore the notice. With interest on unpaid balances accruing an annual rate of 7%, time only makes the problem more expensive.