Posted byon March 16, 2011
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You’ve filed your delinquent tax returns, or perhaps you are still teetering on the edge because of the fear that you don’t have enough money to pay all of your tax obligations.
No matter what, you should always file your taxes on time or as soon as possible if you realize they are late. After filling out the tax forms you can focus on how you will pay your tax obligations if you owe the IRS.
There are both penalties and interest that must be paid when taxes are not paid in full at the time they are due. Here is a snippet straight from the IRS website if you owe taxes:
“The Failure to Pay Penalty is calculated at one-half of one percent of the tax owed for each month, or part of a month, that the tax remains unpaid after the due date, not exceeding 25 percent. The one-half of one percent rate increases to one percent if the tax remains unpaid after several bills have been sent to you and the IRS issues a notice of intent to levy. Beginning January 1, 2000, if you filed a timely return and are paying your tax pursuant to an installment agreement, the penalty is one-quarter of one percent for each month, or part of a month, that the installment agreement is in effect.”
As for the interest, the current rate charged is 3% when you owe IRS taxes. The interest, charged on any unpaid tax from the due date of the return until the date of payment, is compounded daily.
Update: The IRS is waiving failure to pay penalties for taxes due in 2012 for unemployed taxpayers. For more information see: Unemployed Tax Relief.
By filling out your tax forms, you now know approximately what you owe (I say approximately because if your taxes are delinquent, penalties and interest will be assessed by the IRS once your form is submitted). Based off of how much you owe, make a plan and figure out how long you need to pay off this obligation. If you cannot pay the entire amount, take a look at the options below.
Please note that any agreement you negotiate with the IRS will take into consideration your other financial obligations, your salary, etc. Be prepared to furnish this information to the IRS in order for them to determine if they will enter into an agreement with you. Also, penalties and interest do not stop accruing because you are in one of these agreements, so it is best to pay your obligation in full when you can.