- Thomson Reuters Tax Analyst Jim Keller provides some options available to help taxpayers pay their balance due. This article originally appeared on ThomsonReuters.com. –
Are there options for Americans who cannot pay their taxes? According to Jim Keller, senior tax analyst for the Tax & Accounting business of Thomson Reuters, if you discover on April 15 that you have a balance due on your 2009 Form 1040, you won’t be alone.
In addition to the traditional causes of tax underpayment (such as the receipt of interest, dividends, or other non-wage income), the government estimates that more than 15 million taxpayers will be unpleasantly surprised to discover that they owe taxes with their 2009 returns as a result of the way income tax withholding was reduced to account for the “Making Work Pay Credit”.
“Taxpayers who fail to file on a timely basis and pay their taxes face penalties and interest charges,” said Keller, “these folks can expect to come up against a more aggressive IRS. For example, the IRS filed more than 683,000 tax liens during 2008 and served over 2.6 million levies during that same period.
There are some options available to help taxpayers pay their balance due:
GETTING AN EXTENSION
- No cash? File an extension. Assume that Don and Jody’s 2009 tax return shows unpaid tax of $5,000, but they don’t have the cash to pay the tax. First, they should not ignore the IRS – it will not go away. They should either file their return by the April 15 due date, or request a filing extension. Either way, the failure to pay the taxes due on April 15 will result in interest charges and a penalty for failure to pay of 0.5 percent per month on the unpaid balance (up to 25 percent) until the taxes are paid. But by filing or extending their return, they’ll avoid the more onerous late filing penalty of 5 percent per month on the unpaid balance (up to 25 percent) until the return is filed.
- Don’t do anything. If Don and Jody don’t do anything by April 15th, but file the return and pay their taxes three months later, they’ll owe a failure to file penalty of $750. If they extend the return and then file it and pay their taxes three months later, they’d pay a failure to pay penalty of $75 – $675 less than if no extension had been filed. “This shows how important it is to file or extend by April 15th even if you don’t have the money,” said Keller.