If you have received a notice from the IRS of back taxes due or you filed your taxes and already know that you owe the IRS, you might feel panicked at the massive amount due and the lack of funds in your bank account.
Fortunately, you do not need to worry about paying everything up front. Naturally, the more you pay, the better. This is so you can avoid interest and penalties. But when you cannot pay it all off, the IRS and state tax commissions both have ways you can satisfy your debts.
Your Options as a Bergen County Resident for Paying the IRS or State Tax Division
Like most creditors, the IRS and New Jersey tax commission are aware that most consumers cannot pay their sum at once – especially when the taxes due are over $1,000. That is why both agencies offer you a way to pay off your tax balance without having your personal property seized or wages garnished.
No matter how high the balance is, we will explore your options for repaying the IRS or state so that you can get back into good standing.
Pay as Much as You Can Upfront
Show the IRS or state tax commission good faith by paying off as much as you can upfront – even if it is only $100. Not only does this show that you are willing to pay off the balance due, but it also reduces penalties and interest, which can add up significantly.
Interest and penalties for state and federal tax agencies accrue from the first day after the due date. This means the day after Tax Day, you have begun incurring interest and penalties and will continue to do so until the balance is paid in full.
Making a Full Payment in 120 Days
If you cannot pay the tax bill in full immediately, the IRS does have a short-term payment extension. To qualify for this, you must file your taxes on time. The IRS will give you 120 days to pay your taxes.
You will still accrue interest on your unpaid balance, and the IRS does apply the late payment penalties.
If the balance is small enough, the 120-day extension could be worthwhile. It gives you time to save up and pay off the balance and avoid long-term costs.
Using the Installment Agreement Options
Both the state and federal government offer long-term payment plans. Each operates differently and has their various rules and requirements for qualification.
IRS Installment Agreements
Installment agreements are the most common way to repay your taxes if you cannot pay them in 120 days or when you receive the notice. You can usually apply online through the IRS portal or apply along with your tax return.
Installment agreements will have you pay a set amount each month over a period. You will incur penalties and interest.
When you sign up for the installment agreement, you will pay the agreed fee and also submit payment along with your proposed payment plan.
You can pay your installment agreement amount through:
- Electronic Federal Tax Payment System
- Automatic debit from your bank account
- Check by mail
- Credit card
- Money order
To qualify for an installment agreement, you must:
- Create a plan that repays your debts within 72 months (as long as the amount due is under $50,000).
- Assign an amount that is greater than the minimum acceptable payment.
- Have all previous tax returns filed.
New Jersey Deferred Payment Plan
Deferred payment plans are done through the Division of Taxation. You are limited to 24 months in the plan. Therefore, when you calculate your payment, you must ensure it will satisfy the debt within two years.
As with the IRS, all previous tax returns must be filed to qualify. Furthermore, you must owe more than $1,000 to apply for your repayment plan.
Offer in Compromise
The offer in compromise (OIC) lets you settle your tax debt by paying less than the total balance due. An OIC might be the best option if you are facing financial hardship as well. OICs are complicated, and you should never apply for an OIC without consulting a tax professional. The IRS is notorious for rejecting OICs, especially if you do not fill them out correctly.
When you apply for an OIC, realize that the IRS will review your assets and look for potential options to sell your assets and satisfy your debts.
The rules for OIC are strict. But if you do qualify, you must be prepared to pay the amount proposed in your OIC to the IRS upon acceptance. Therefore, you will need to ensure that you have the cash available to pay for your large sum upfront.
A Tax Attorney Can Help
When you owe the IRS or state back taxes, you can feel as though you have something looming over your head for good. It takes time to repay back taxes, and the interest and penalties continuously accruing do not help.
If you find yourself drowning in tax debt or you want to explore your options, contact Paladini Law.
As a tax attorney, I can help review your situation with the state or IRS and find the tax repayment solution that works best for you financially.
I work with clients struggling to repay personal and business taxes, and I can help you navigate the complexities of the state and federal tax codes.
Get started by scheduling a consultation today at 201-381-4472 or request more information about my services online.