Tax surprises: Options for an unmanageable bill
Recent data shows that only 16 percent of United States taxpayers adjusted their withholdings after the new tax law passed. Without a change to one’s withholding status, taxpayers could find themselves facing an unexpected tax bill this tax season.
Two options for taxpayers struggling with their tax bill: Installment plan and offer in compromise
There are options for those that find themselves with a bill that they cannot pay. In some cases, the Internal Revenue Service (IRS) will agree to an installment plan. Although this will allow the taxpayer more time to pay their tax bill, it does come with consequences.
Taxpayers that do not pay their tax bill in full on the expected due date can face penalties. Even if the IRS accepts an installment plan agreement the agency may still apply interest on unpaid tax obligations until the taxpayer pays the bill in full. Although not ideal, it is better than the additional penalties that can come with failing to make any payments on your tax bill.
Another option for those with more serious financial struggles is an offer in compromise. An offer in compromise essentially results in the IRS accepting a payment that is less than the tax bill. The IRS will then forgive any remaining debt. The IRS generally only accepts an offer in compromise when the taxpayer can establish that the offered amount is all that the taxpayer could reasonably pay.
Another note: IRS can apply additional penalties for those with a large tax bill
Even those who can pay an unexpectedly large tax bill may face additional penalties. The IRS expects taxpayers to pay 90 percent of their tax obligation throughout the year. A failure to do so can result in a penalty. However, it appears the IRS has agreed to reduce the penalty threshold. In the past, taxpayers were required to meet 90 percent of their tax obligation or else pay an additional penalty fee. The IRS has stated it will decrease the threshold it applies the penalty to 85 percent of the taxpayer’s obligation.
These are just a few of the options available for those who are managing tax debt. An attorney experienced in these matters can review your situation and provide counsel on the best options available.