As tax season draws near, you may be concerned that you can’t pay your tax bill. Remember, you have until April 15 to pay your tax bill in full once you learn how much you owe. If your financial situation is more dire than that, you have some time to explore your options. There are still four months to plan how to pay that tax bill.
However, if your tax problems or finances are so severe that you can’t pay the bill ever, consider filing for a hardship plea. This way the bill is declared uncollectible.
Here’s what you need to do if you can’t pay your taxes.
First, File Your Tax Return
It sounds counter intuitive, but it’s necessary that you file your current tax return. Failing to file on time can result in additional penalties plus interest on the unpaid taxes, which will only compound your financial stress. At the very least, file your tax return on time if you can. If you don’t think you’ll be able to, file for an extension — but bear in mind that the extension only gives you extra time to file your tax return without penalty, it doesn’t give you extra time to pay. If you can, include partial payment with your tax return so you will pay less interest over time.
Having your latest tax return on file also helps the IRS properly determine what you owe. If you go too long without filing, they will file substitute returns on your behalf based on the information in their system, and substitute returns never claim any benefits beyond the bare minimum for the last filing status you used. This could overstate your tax bill, thus making your tax problems even worse.
Explore Payment Plans and Alternatives
After you’ve filed your tax return, it’s time to assess the following:
- How much you owe
- The amount you can reasonably pay now
- How much time you would need to pay the entire bill
- What options are available to you
Many taxpayers find that they can’t pay their tax bills once they’ve prepared their taxes, so the IRS has payment plans. These plans have setup fees, but they will be waived or reduced for low-income taxpayers as well as those experiencing hardships such as health problems or fleeing domestic violence. Paying your taxes with a credit card is also an option, although IRS interest is often lower than credit card interest.
You can also file an offer in compromise (OIC), which is an option to settle your back taxes if there is no hope of collecting what you owe or you don’t think you were correctly taxed in the first place.
If you can’t pay taxes, consider these options: Temporarily Uncollectible (Status 53) or Filing for Hardship
If you have a long-term reason for being unable to pay your taxes, such as poverty or disability, there are the “soft” and “hard” options for declaring your taxes uncollectible.
Temporarily Uncollectible, Status 53
“Status 53,” the soft option, refers to the internal account status at the IRS. You can make your account temporarily uncollectible for 30 days by speaking to an IRS representative and telling them about your situation. If you have been medically unable to work, fled domestic violence, or have faced other extenuating circumstances, your account gets flipped to status 53 so the collection efforts will temporarily halt.
Filing for hardship is more formal and requires more legwork on your end.
The IRS defines financial hardship as “unable to pay his or her reasonable basic living expenses”. If you owe more than $10,000, you will need to fill out a form. The form details your assets, debts, income, and living expenses. If you are sick or disabled, you will need proof from healthcare providers or caseworkers. Employment length and sources of income are examined, so long-term unemployment or underemployment is likely to go in your favor.
“Reasonable living expenses,” includes rent or mortgage, utilities, food, transportation, and medical expenses. Debt repayment is not factored in. Nor is anything that would denote a luxurious standard of living – like entertainment or health club dues. You will need to provide three months’ worth of monthly bills and proof of expenses. So take extra caution to save receipts if you do not have this information stored on a credit card statement.
Filing for hardship is difficult, but not impossible with adequate record-keeping and knowledge of the rules. Still have questions about filing for hardship or filing a disputed claim with the IRS? Please give this office a call at (360) 778-2901.
January 2020 Individual Due Dates
