For tax filers who would not be able to pay in full (if there’s tax due), it is important to be aware of the IRS collection process, which starts from the time the tax is filed and continues until your balance is paid or until the Internal Revenue Service may no longer legally collect the tax, most often because the collection period has expired. Here’s how the process works:
First thing that’ll happen is that you’ll receive a bill. On the bill you will see a detailed breakdown of the balance due and a requirement to remit payment in full. It will include the tax plus penalties and interest added to your unpaid balance from the date the tax was due. This can be settled by sending the IRS a check or money order, payable to the United States Treasury, with a copy of the notice. As an added convenience, you may also pay by credit card or debit.
If for a reason, you cannot pay in full, you should send in as much as you can with the notice. That is because the unpaid balance is subject to interest which is compounded daily and a monthly late payment penalty. It is in your best interest to pay your tax liability in full as soon as you can to minimize additional charges. You also might want to consider a obtaining a cash advance on your credit card or applying for a bank loan altogether. The interest rate on your credit card or the financial charges of your loan may even be lower than the combination of interest and penalties imposed by the Internal Revenue Code. Paying off your tax debt by obtaining a cash advance or a bank loan may also keep your tax debt from negatively affecting your credit rating.
If in the case where all payment options have been considered and it was determined that you do not qualify for an installment agreement, you may choose to propose an Offer in Compromise (OIC) instead. It is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability. This is best done via a government tax advisor, one who can give you excellent advice on how to go about the process.
Happy tax-paying!
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