Payment Options When You Owe Money to the IRS

A hand writing IRS Problems on glass. What are the Payment Options When You Owe Money to the IRS?

If you find yourself struggling to make ends meet and you fall behind on bills (credit cards, mortgage, car loan, etc.), tax season can add even more stress to your financial situation. What happens if you are unable to pay your federal income taxes? Are there payment options when you owe money to the IRS (U.S. Internal Revenue Service)? We will explore these questions and more throughout this article. So, let’s dive right in.

Payment Options When You Owe Money to the IRS

First of all, if you owe back taxes, just know that you are not alone. According to IRS data, Americans owed more than $114 billion in back taxes in 2020 alone. And because this is not an uncommon occurrence, there are several payment options when you owe money to the IRS.

Payment Plans (Installment Agreements)

The IRS offers payment plans – both short-term and long-term – as options for Americans who are unable to pay their full tax liability. Short-term payment plans are available without any additional fees for those able to pay their back taxes within 120 days. Long-term payment plans are also available and are paid in monthly installments. These long-term plans come with a $149 user fee. 

Tthe failure to pay tax penalty rate is cut in half while an installment agreement is in effect, reduced from 0.5% per month to 0.25% per month.

Offer in Compromise

An Offer in Compromise is an agreement to settle your tax debt for less than the full amount you owe. However, not everyone qualifies for this offer. You may be eligible to apply if you:

  • You filed all required tax returns
  • You made all required estimated payments
  • You are not currently in an open bankruptcy
  • You have a valid extension

The IRS typically grants an Offer in Compromise if the amount you offer represents the most they can expect to collect within a reasonable period of time. You should explore all other payment options before you submit an offer in compromise. You can also check the Offer in Compromise Pre-Qualifier to see if this options is right for you. This option also requires a non-refundable $205 application fee.

Temporary Suspension of Collection

If the IRS determines that you cannot pay ANY of your tax debt, they can report your account as currently not collectible and temporarily delay collection activities until your financial situation improves. However, this DOES NOT mean that the debt goes away. It simply moves your obligation to pay until a time when you are better able to make the payments. And your debt will continue to increase as penalties and interest are charged until you pay the amount in full. 

Personal Loan

In some circumstances, borrowing the amount owed, or even paying by credit card, may be a better option than the penalties and interest accrued by late tax payments. However, this is often little more than a bandaid, shuffling monies owed from one creditor to another. So, it is important to have a financial plan in place if you decide to go this route.

Wage Garnishment

Wage garnishment (or wage attachment) is one of the most utilized weapons in a creditor’s collection arsenal. In order for most creditors to obtain a wage garnishment in Maryland, they must first file a lawsuit, obtain a judgment, and get a court order. This is true for most types of debt, including credit card or medical bills. However, if you owe back taxes, the IRS can garnish your wages (called a “levy”) without filing a suit. The weekly exempt amount the IRS can garnish is based on the total of the taxpayer’s standard deduction and the aggregate amount of the deductions for personal exemptions allowed the taxpayer in the taxable year in which such levy occurs. This number is then divided by 52, the total number of weeks in a calendar year.

If you find yourself in this situation, there are steps you can take to stop wage garnishment. But it all starts by contacting an experienced Maryland bankruptcy attorney, like Steiner Law Group, to discuss your rights and options. We are a boutique law firm in Maryland that assists individuals and businesses with bankruptcy and financial restructuring services. We have helped hundreds of individuals, families, and businesses discharge millions in debt, and have experience stopping wage garnishments and getting back certain garnishments that were taken. If you have questions about wage garnishment or your payment options when you owe money to the IRS, please schedule a risk-free consultation or contact Steiner Law Group, LLC at (410) 670-7060 to learn more about bankruptcy options.