For you to know how much you owe in income tax for any given year, you have to prepare and file your tax return. Individual income tax can be filed and paid by the annual deadline of April 15th. Penalties and interest are charged at a rate of .5% of your tax liability if you miss this deadline.
A number of choices are offered by the IRS for you to pay your taxes. Utilize one of the following ways to pay your tax liability in full right away.
1. Check or Money Order
Payment can be made by check or money order if you are filing a paper return and the IRS Form 1040-V (Payment Voucher) should be submitted to make the payment. You can mail Form 1040-V in the same envelope as your tax return but be cautious not to staple the forms together. For the right mailing address, look at Page 2 of Form 1040-V.
2. Direct Debit
Using “Direct Pay” on the IRS.gov website is probably the easiest way to pay your Federal taxes. Tax bills can be paid directly from your checking or savings accounts using this method. In order to be able to use the “Direct Pay” system, your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) must be provided. Select “Tax Return” as the reason for your payment so your payment is applied to the amount owed from your tax return.
If you do not have enough money in your bank account to clear your tax bill by the deadline the IRS give you some other options. Even if you cannot pay in full, you should try to pay what you can before the deadline.
3. Credit Card
You can pay your taxes using your credit card if you have credit available on it, but do not have enough funds in the bank. You can view the list of available Payment Processors on the IRS website. Remember that a processing fee is charged when you use your credit card and the fees vary by service providers and are listed on the website. The interest and fees associated with paying your taxes by credit card are less than the interest and penalties imposed by the IRS for late payments in most cases. Hence paying taxes by credit card is a viable option for many people who just don’t have the funds at hand.
4. Installment Plans
Applying for an Online Payment Agreement on the IRS website is an option in the case that you as an individual owe $50,000 or less, or as a business owe $25,000 or less. What this means is that you agree to clear your tax balance over time in installments. Keep in mind that interest is still accrued on your unpaid balance although you are not considered to be in default. Providing information about your income and tax liability to the IRS is necessary to apply for online payment. An immediate notice will be sent online about the decision made by the IRS – whether you have been approved or denied.
A settlement can be made with the IRS if paying your taxes will result in “extraordinary hardship” to you. Extraordinary hardship covers the extensive medical bills to cover a sick child or huge costs caused by a natural disaster for example. What happens is that you will pay a portion of your tax liability right away and the IRS will agree to let go of the rest. You have to go through a lot of red tape to get your settlement approved, and provide proof that paying your taxes in full would be an impossible task. Being able to pay taxes through installment will disqualify you for an Offer in Compromise.
What If You Don’t Pay?
The IRS will begin collecting your taxes in whatever way they see fit, if you do not pay them by the due date. Interest accrues on a daily basis and monthly penalties will also be charged on your unpaid balance.
A federal tax lien can be enforced if you neglect to pay your taxes. A tax lien is defined as the right of the IRS to seize your property if you fail to pay your taxes. The IRS can garnish your wages and other assets through a tax lien that will not get lifted unless you completely pay your taxes and penalties.
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