how to make a payment plan with the IRS
it'll cost less than putting your taxes on a credit card
Hello to the 1,021 hotties who subscribe to this newsletter! Thank you for being here!
We’re inching closer to Tax Day on April 15, and I want to give the hotties as much support as possible.
Scroll through this post on Instagram that outlines how to file your taxes for free.
If you’re considering becoming a war tax resister, read my last newsletter to learn about the risks and how to do it.
Come to Office Hours on Monday, April 15 from 5-6:30pm. I’ll teach a short workshop about financial decision-making skills to get us started, then we’ll have quiet co-working time to work on any money-related tasks you’ve been putting off, like filing your taxes. Register using this link.
Lastly, if you owe taxes this year and can’t afford to pay them by Monday, this newsletter goes out to you.
At the end of 2022, 18.6 million individual taxpayers — an 11% increase since 2019 — owed $316 billion in taxes, according to IRS data reported by the Wall Street Journal. Five million of those taxpayers owe less than $1,000, while 6.3 million owe between $1,000 and $4,999. A survey by Credit Karma showed that 23% of taxpayers who expect to owe taxes this year planned on taking on debt to pay their tax bill.
Before you whip out a credit card or skip out on this year’s tax bill, consider making a payment plan with the IRS. Here’s what you need to know.
What happens if I don’t pay my taxes on time?
The IRS starts charging interest and penalties after April 15. If you file for an extension, you’ll get more time to file your taxes, but you still need to make estimated payments by April 15.
The IRS even charges interest on the penalties for paying taxes late. Here are some common types of penalties:
Failure to File Penalty: On top of the taxes you owe, you may get charged up to $485 or 100% of the underpayment amount, whichever is less, for filing your taxes after April 15.
Failure to Pay Penalty: You’ll get charged 0.5% of your unpaid taxes for each month, but the amount won’t exceed 25% of the unpaid taxes.
Underpayment of Estimated Tax by Corporations: (applies to LLCs, S-Corps, and other business entities) Corporations generally pay quarterly estimated taxes if they expect to owe $500 or more in estimated tax if they file their return. The penalty amount is based on the taxes you owe, the period of underpayment, and the published interest rates for underpayment.
In case this is what you need to hear: Paying taxes is incredibly unfair and emotionally loaded. Our government needs to hold billionaires to the same standards as the working class. Our tax dollars are being used to fund multiple genocides and world crises. We are being asked to take personal responsibility for systems that work against us, and it’s okay to feel emotional about that. It’s okay to have procrastinated or dissociated from the process if that’s what you must do to get through it.
With their backs against the wall, some people charge tax debt on their credit cards as a last resort. Let me put this into perspective: The average credit card interest rate is 24.66%, according to LendingTree. A tax debt of $1,000 split up in $30 payments at an interest rate of 24.66% would take 4 years to pay off, and you’d have to pay a total of $1,676 instead of the original $1,000 you owed.
On the other hand, the IRS offers short-term and long-term payment plans with interest rates between 4 to 8%.
Types of payment plans
Short-term payment plan
A short-term payment plan with the IRS must be paid off within 180 days. Right now, only individual taxpayers can apply online while business owners can use a paper, phone or in-person application.
You are eligible for a short-term payment plan if you owe less than $100,000 in combined taxes, penalties and interest.
There are no set-up and application fees for individuals, but businesses might have to pay set-up and application fees for a short-term payment plan.
Long-term payment plan
A long-term payment plan with the IRS lasts more than six months. There are two options:
Set up monthly payments from your checking account. The IRS calls this a Direct Debit Installment Agreement. There’s a $31 set-up fee if you apply online, and a $107 set-up fee to apply by phone, mail, or in person.
Set up monthly payments through the Electronic Federal Tax Payment System (EFTPS), Direct Pay from your checking or savings account, or via check, money order, debit or credit card. This option allows you to pay manually instead of using an automatic withdrawal. The set-up fee is $130 if you apply online, and $225 if you apply by phone, mail, or in-person.
There are waivers available for low-income taxpayers who earn at or below 250% of the federal poverty level. Here are the poverty guidelines set by the Department of Health & Human Services:
For example, if you are a single person who makes less than $37,650, you qualify for the low-income taxpayer status set-up fee waiver.
Apply for long-term and short-term payment plans here.
Payment methods available
Direct Pay: pay directly from a checking or savings account
Direct Debit Installment Agreement (DDIA): automatic withdrawal from your debit account (available for long-term payment plans only)
Electronic Federal Tax Payment System (EFTPS): pay online or by phone using your debit or credit card, checking or savings account.
Check, money order, debit or credit card. Fees apply when paying by card.
I hope this newsletter gives you some relief if you’re struggling to pay your taxes this year.
Til next time,
Leo