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When You Need to Pay the IRS

April 16, 2009

When you owe the IRS and need to send payments with or without your tax return, there are some things you should keep in mind. Since what you owe the IRS is subject to interest and a monthly late payment penalty, it is in your best interests to pay-off the full amount as quickly as possible to minimize the extra charges. Penalties will also be assessed for failure to file a tax return, so remember, even if you cannot pay your balance right away, you must file your return.

Some things to consider when arranging payment:

Never send cash.
You can authorize an electronic funds withdrawal through your tax provider, at the same time that you e-file your return.
Whether you file electronically or on paper, you can pay online or over the phone using your credit card. To pay by phone call 1-800-2PAY-TAX, or pay online at officialpayments.com. A small convenience fee, beginning at $1.00, will be charged by the service provider, not the IRS, when authorizing a payment by phone or on the internet.
If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
As an alternative to paying taxes or user fees by check or money order, you can make payments 24 hours a day, seven days a week. Refer to Publication 3611, e-File Electronic Payments for more details.
Do not staple or otherwise attach your payment to the actual paper Form 1040 or Form 1040-V Payment voucher. Instead, put them loose in the envelope.
Make money orders or checks payable to “United States Treasury.”
Include on your check your full legal name, address, main Social Security number (the first SS# on the tax form,) your daytime telephone number, the tax year and the form number, (eg. 2008 F-1040.)
When sending your payment and tax return to the IRS, complete and include Form 1040-V, Payment Voucher. The inclusion of this form helps the IRS process your payment accurately and efficiently.

If it turns out that you cannot pay the IRS in full, they offer a short additional time to pay of up to 120 days, or approximately four months. Even if you cannot make the full payment you may want to pursue financing the amount due, through a home equity loan or a cash advance on your credit card. Although this creates yet another entity you will owe, the interest rate on a cash advances or a loans from financial institutions will usually be lower than the combination of interest and penalties accrued from the IRS.

Because the IRS wants your payment they also offers various options for making monthly installment payments. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.

Some of the possibilities for paying in installments are:

Direct Debit from your bank account
Payroll Deduction from your employer
Payment via check or money order
Electronic Federal Tax Payment System.
Payment by credit card via phone or Internet
Online Payment Agreement

If you decide on an installment agreement, your monthly payment should be based on your ability to pay and should be an amount that you are comfortable paying each month to avoid further penalties and fees.

Call your tax professional for assistance or for additional information about payments refer to Electronic Payments, Form 1040-V - Payment Voucher, Form 1040-ES - Estimated Tax for Individuals, Publication 17 - Your Federal Income Tax.

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* A Refund Anticipation Loan (RAL) is a loan secured by your tax refund and is offered by Republic Bank & Trust Company to qualifying applicants, and is available to Electronic Refund Check or Deposit (ERC or ERD) customers. If approved for a RAL, a Finance Charge and Credit Investigation Fee will apply. RAL proceeds are available within 24 hours of IRS acceptance. A Tax Refund Administration Fee and other fees may apply for the ERC or ERD, and will be deducted from the customer’s tax refund. Visit your tax preparer to learn about all filing and product options, including obtaining your refund without a loan and at no additional cost. **Special expires 5/2/12.