It happens; you owe the IRS or a state income tax. What do you do? You actually have a variety of options available to make your payment. You can send a check or money order, pay online or set up an installment agreement and pay over time. The method is up to you.
The traditional payment method is by a check or money order (MO). Please don’t send cash. A check or money order can be added to your paper filed return (Please copy the money order and keep the stub safe.) If you e-filed your return, you should have been given a voucher to mail with your payment. The federal check should be made out to the US Treasury. And do put your SSN on the check/MO. If you aren’t comfortable with putting your SSN on the check, black out the first part of it.
Check with your tax pro or with your tax software if you are doing your return yourself. They may allow you to do a direct debit of your balance due. It’s set up like a direct deposit and the information goes in when the return is filed. Generally the withdrawal is set up for April 15th but you can pick your own date.
Once the return has been filed, you can still have your balance due debited from your bank account using the IRS’s Direct Pay. There is no pre-registration and you can schedule the payment up to 30 days in advance. The IRS has long had Electronic Federal Tax Payment System (EFTPS) to make tax payments. The difference between Direct Pay and EFTPS is EFTPS has more involved set up process and you can’t just sign up and pay the same day (or week even)
You can also pay your balance due with a credit card. The IRS has a list of credit card processors on their web site. A word of warning, you will be charged a fee by the processor.
The advantage of paying through Direct Pay, EFTPS or with a credit card is that you get a confirmation number that your payment has been made. That could come in handy if there is a question later.
What if you can’t pay your balance due? First, file your return. This stops the failure to file penalty. The IRS has an installment payment program that allows you to stretch out your payments. You can use their online payment agreement to apply for it. You can do it online if you owe less than $50,000 in tax, penalties and interest. Not comfortable with the online process? You can file form 9465. Either way, you will see an application fee added to your balance. The fee will depend on how you chose to pay (the IRS prefers direct debit and cuts the fee if you chose that option) and you may qualify for the low income fee. As you set the monthly payment amount, remember that interest and penalties will continue to build so you want to pay off your balance as soon as you can. If you think you can pay your balance due off in a few months (2 to 4), you can work out a short term plan. The advantage is that there is no fee and the interest and penalties can be lower. This plan is online too.
If you owe a state balance due, many of the same options are available to you. Check with your tax software or on the state tax department website.
The IRS and other tax agencies all want your money and they’ve given us a lot of ways to pay them. No matter which you choose, file your taxes on time and save yourself that penalty.