Tax Debt Advice - Payment Plans & Forgiveness Options

It is not surprising that millions of taxpayers fall behind in their obligations to the IRS every year, but it may be surprising that there are several tax-relief programs available to bail out consumers.

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Where Can I Get Tax Debt Help?

For basic tax issues, try contacting your local Taxpayer Assistance Center. They should be able to explain IRS notices or help set up an installment plan if you can’t afford your tax bill.

If you have trouble communicating with them, try the Taxpayer Advocate Service, which is a separate organization within the IRS that ensures individuals are treated fairly and understand their rights regarding taxes.

More complicated tax issues require the help of a tax attorney. These situations can include an IRS audit, negotiating a settlement or repayment plan with the IRS or a criminal investigation for tax fraud or tax evasion.

Oxford Tax Partners is a group of attorneys that specialize in these cases. If you owe more than $5,000 in back-taxes or are facing legal consequences from the IRS, they’ll provide a free consultation on their tax debt resolution services.

Oxford Tax Partners can help with:

  • IRS audit defense – defends you when the IRS examines the accuracy of your tax return
  • Wage garnishment resolution – resolves a situation in which the government takes a portion of your paycheck to satisfy your tax debt
  • Lien/Levy removal – prevents the seizure of property by the government
  • Offer-In-Compromise (OIC) – settlement for less than the amount owed due to disputed amount of tax debt or inability to pay the full amount and assets won’t cover the difference
  • Currently Not Collectable (CNC) – deferred payments for financial hardship situations like unemployed

How Much Interest Does the IRS Charge? What about Penalties?

The tax due date is April 15th each year, unless that date falls on a weekend or holiday. If you miss the deadline and still owe money to the IRS, there is a penalty, even if you file for an extension.

Penalties are broken down into three categories:

1. Interest

Interest starts building immediately after the due date and is compounded daily. The rate is calculated quarterly based on the federal short-term rate plus 3%. That puts it at 5% as of August 2018.

2. Failure-to-pay penalty

The failure-to-pay penalty applies when you haven’t paid at least 90% of the taxes owed by the tax deadline. The failure-to-pay penalty is ½ of 1% of the amount of unpaid tax. It is applied each month up to a maximum of 25%. The penalty increases to 1% if the tax remains unpaid 10 days after the IRS issues a notice of intent to levy property.

If you file your taxes on time and request an installment agreement, the penalty decreases to ¼ of 1% per month until the tax is paid.

3. Failure-to-file penalty

Failure-to-file is a much steeper penalty than the failure-to-pay penalty, but it works in a similar way. The IRS charges 5% of the tax owed for each month your return is late, up to a maximum of 25%. The minimum penalty for filing over 60 days late is the lesser of either $210 or 100% of the amount of tax owed.

The IRS can reduce the penalties for filing late, if you can show reasonable cause and that the failure wasn’t due to willful neglect.

There isn’t a penalty for filing a tax return late if you are receiving a refund from the IRS.

Can I Pay My Back-Income Taxes with a Credit Card or Debit Card?

Man confused about his tax debt

The IRS doesn’t directly accept payments made with credit cards or debit cards, but it does list three independent payment processing companies – Pay1040.com, PayUSAtax.com and OfficialPayments.com/fed – that you can go through to make tax payments with a credit or debit card.

Each of the payment processing companies have their own fee structure. There will be a 1.87%-1.99% transaction fee for credit cards which might be tax deductible. A debit payment has a flat fee between $2 and $3.95.

The IRS charges less interest (including the penalties) than most credit card companies, so it would be advantageous to set up a repayment plan directly with the IRS before turning to credit cards.

If you prefer the credit card route, look for cards with an introductory rate of 0% APR. The grace period usually lasts 12-18 months, so be sure you’ll be able to pay off the balance in that time.

There are some positives to paying back taxes with a credit card.

Moving the debt to a credit card will help avoid getting your property seized by the IRS or having wage garnishment in situations where you absolutely can’t make payments.

The IRS doesn’t have to abide by the same state and federal wage garnishment limitations as other creditors. You’ll receive two documents, a Final Notice of Intent to Levy and a Notice of Your Rights to a Hearing. Then they can begin to take a portion of your salary 30 days later.

A traditional creditor like a credit card company needs a court order to garnish wages. If the situation gets that far, you will have time to research other debt relief options.

Start with a nonprofit credit counseling agency. Counselors will assess your situation and point you to a reputable credit consolidation or debt management company that can help eliminate the credit card debt.

Need help choosing the best debt relief option for you?

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Author

Staff Writer

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

Sources

  1. IRS (2018, June 26) Topic Number 653 – IRS Notices and Bills, Penalties, and Interest Charges. Retrieved from https://www.irs.gov/taxtopics/tc653
  2. NA. (2018, August 2) Pay Your Taxes by Debit or Credit Card. Retrieved from https://www.irs.gov/payments/pay-taxes-by-credit-or-debit-card
  3. Internal Revenue Service (2012). Tax Information for Individuals. Retrieved from http://www.irs.gov/individuals/index.html?navmenu=menu1
  4. Fram, A. (2012). IRS estimate: 17 percent of taxes owed went unpaid. Yahoo Finance via Associated Press. Retrieved from http://finance.yahoo.com/news/irs-estimate-17-percent-taxes-204637410.html
  5. Petrillo, J. (2011). 10 reasons why people owe the IRS (And how not to be included in the list). Examiner. Retrieved from http://www.examiner.com/tax-preparation-in-national/10-reasons-why-people-owe-the-irs-and-how-not-to-be-included-the-list
  6. Nolo (2012). Tax Debts in Chapter 7 Bankruptcy. Retrieved from http://www.nolo.com/legal-encyclopedia/tax-debt-chapter-7-bankruptcy.html
  7. Nolo (2012). Tax Debts in Chapter 13 Bankruptcy. Retrieved from http://www.nolo.com/legal-encyclopedia/tax-debt-chapter-13-bankruptcy.html
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