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In General

If upon completing your federal income tax return you find that you owe additional tax, you should pay the amount owed with your return. You can make payment by check, money order, or credit card. If you file electronically, you may also be able to make your payment by electronic funds withdrawal.

Taxes owed but not paid by the due date of your federal income tax return are subject to interest, and possibly penalties unless you qualify for an extension of time to pay.

Methods for Making Payment

Payment by Check or Money Order

If you pay your federal taxes owed with a check or money order, you should make it out to the "United States Treasury." On the front of the check or money order, make sure your name, address, and phone number appear correctly, and clearly write your Social Security number, tax year, and IRS form number.

Tip: If you file IRS Form 1040, you should complete IRS Form 1040-V, Payment Voucher, and follow the instructions.

Caution: Never mail cash with your federal income tax return.

Payment by Credit Card

You can pay by credit card through a service provider's Internet site or by calling a service provider and following the recorded instructions. A list of providers, including contact information and associated fee information, is available on the IRS website.

Caution: Service providers charge a convenience fee based on the amount you are paying.

Direct Pay

You can use a service available on the IRS website to pay your individual tax bill or estimated tax payment directly from your checking or savings account.

Payment by Electronic Funds Withdrawal

If you e-file your federal income tax return, you can authorize an electronic funds transfer from your checking or savings account. This option is available through tax software packages, professional tax preparers, and TeleFile. You'll need to provide specific information including your financial institution's routing transit number, and will need to follow the instructions for the e-file method that you are using.

Can You Get an Extension to Pay Your Tax Liability?

An Extension to File Is Generally Not an Extension to Pay

The general rule is that all federal income tax must be paid by the regular due date (without regard to any extensions) of your return. The regular due date for most individuals (those who file on a calendar year basis) for any given year is April 15th of the following year.

Tip: An exception exists if you file your return and have the IRS compute your tax due. In such a case, you may pay any tax owed within 30 days after receiving notice of the amount due.

Caution: Many people mistakenly assume that if they apply for an automatic six-month extension to file their federal income tax return by submitting IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, they also get an extension to pay any tax due. This is not the case. This six-month automatic extension is an extension to file your federal income tax return, not an extension to pay federal income tax. You must estimate, and should pay, any federal income tax due by the original due date of the return without regard to the extension. Any taxes not paid by the regular due date will be subject to interest, and possibly penalties.

Individuals Outside the U.S. May Qualify for an Automatic Extension of Time to Pay

Individuals outside the U.S. may be allowed an automatic two-month extension of time to both file their federal income tax returns and to pay any federal income tax due. To qualify, you must be a U.S. citizen or resident and, on the due date of your federal income tax return, either (1) be living outside the U.S. and Puerto Rico (with your main place of business or post of duty outside the U.S. and Puerto Rico as well), or (2) be in the military or naval service outside the U.S. and Puerto Rico. If you qualify, attach a statement to your return when you file it explaining how you qualify for the extension.

Tip: If you file a joint return, only one spouse has to qualify for this automatic extension.

Caution: While this automatic extension is an extension of time not only to file your return but also to pay your federal income tax, interest will be assessed on any taxes due but unpaid as of the regular due date.

Individuals Serving In a Combat Zone Qualify for an Automatic Extension of Time to Pay

If you serve in a combat zone (or qualified hazardous duty area), your due date for both filing a federal income tax return and paying federal income tax is automatically extended by a minimum of 180 days. Members of the U.S. armed forces, Red Cross personnel, accredited correspondents, and civilians under the direction of the U.S. armed forces in support of U.S. armed forces can qualify.

If you qualify, your due date for both filing your federal income tax return and paying your taxes will be extended by at least 180 days from the last day you're in a combat zone or the last day of qualified hospitalization for injury related to service in a combat zone. In addition, this 180-day period will be increased by the amount of time that you had left (as of the date you entered the combat zone) to file by the regular (e.g., April 15) filing date.

Example(s): Most people have a three and one-half month period of time (from January 1 to April 15) to file a federal income tax return for the preceding year. If you entered a combat zone prior to the beginning of this period (January 1), you'll have an additional 3½-month period after the 180-day extension expires to file and pay your federal income tax. If you entered the combat zone on March 1, however, you'll have an additional 1½-month period after the 180-day extension to file and pay your tax.

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Tip: Only one spouse has to qualify for this automatic extension. There are, however, specific exceptions. Consult a tax professional.

Tip: No penalties or interest will be assessed for failing to file a return or to pay federal income tax during the extension period.

Tip: A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. armed forces are engaging or have engaged in combat. See IRS Publication 3, Armed Forces' Tax Guide for more information.

The Military Family Tax Relief Act of 2003 provides that individuals serving in "contingency operations" are entitled to the same extensions for filing tax returns and making tax payments that apply to individuals serving in combat zones. Contingency operations are those operations designated by the Secretary of Defense as military operations in which members of the Armed Forces are or may become involved in military actions or hostilities against an enemy of the United States or against an opposing military force or result in the call or order to (or retention of) active duty of members of the uniformed services during war or national emergency declared by the President or Congress.

Application for Extension of Time for Payment of Tax (IRS Form 1127)

It is possible to apply for an extension of time to pay your federal income tax. This is done by filing IRS Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship. The application must be submitted by the payment due date. If approved, an extension of up to six months can be granted. In practice, however, extensions of time to pay tax are rarely granted. To qualify you must show that you will suffer undue hardship or substantial financial loss by paying the tax on the date it is due.

You must also demonstrate that you cannot borrow money to pay the tax bill except under terms that would cause severe loss and undue hardship. As part of your application for an extension, you must submit supporting financial information, and may be required to offer security in the form of a bond, pledge, deed of property, personal surety, etc. If you ignore any specific requirements, or are unable to pay your tax because of your own negligence, it is unlikely you will be granted an extension to pay your income tax.

Caution: Even if granted, you will be charged interest on any taxes due but unpaid as of the regular due date.

What Happens If You Don't Pay Your Income Tax When Due?

If you file a federal income tax return reflecting tax owed, but you do not pay the tax by your due date, you will receive a bill from the IRS called a Notice of Tax Due and Demand for Payment. This bill will include the tax owed, plus penalties and interest. At a minimum, in addition to interest a failure-to-pay penalty will generally be assessed at a rate of ½ of 1 percent of unpaid taxes per month (or part of a month) that the taxes are not paid, up to a maximum penalty of 25 percent. Interest is calculated at 3 percentage points over the federal short-term rate, and is adjusted quarterly. Interest is compounded daily.

One of the biggest mistakes that people make is not filing a federal income tax return because they owe taxes, can't afford to pay the amount owed, and want to postpone the billing and collection process. This is a very bad decision for a number of reasons. By not filing your federal income tax return on time you're subject to a failure-to-file penalty in addition to interest and the failure-to-pay penalty. The failure-to-file penalty is generally 5 percent of the amount of unpaid taxes as of the due date, per month (or part of a month) that the return is late, up to a maximum penalty of 25 percent. By the time you finally do file your return (and if you don't, the IRS will eventually file one for you) the amount of accrued interest and penalties can be staggering. You're much better off filing your return and working out a payment agreement with the IRS (discussed below).

Tip: The failure-to-file penalty can be 15 percent per month, up to a maximum penalty of 75 percent if your failure to file is due to fraud. If your return is filed more than 60 days late, a minimum failure-to-file penalty of $435 (in 2020) or 100 percent of unpaid tax (whichever is less) applies. If you are subject to both the failure-to-file penalty and the failure-to-pay penalty in a given month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for that month.

What If You Just Don't Have the Cash to Pay Your Federal Income Tax?

First of all, you should pay what you can — a partial payment is better than no payment at all. The more you can pay, the more you'll reduce penalties and interest (interest and penalties will continue to accrue on that portion that remains unpaid). If you don't pay all taxes due, you'll eventually receive an IRS Notice of Tax Due and Demand for Payment. This notice will include the tax owed, plus penalties and interest.

Caution: Do not ignore an IRS notice of balance due. If you do nothing at this point, you will receive a series of increasingly unpleasant notices from the IRS, and ultimately collection attempts will be made. These collection attempts could include bank account seizures, wage levies, or the taking of assets.

If you don't have the cash to pay your taxes, your options depend on your individual financial circumstances and the amount of taxes that you owe. One option has already been mentioned — paying your taxes with a credit card. Additionally, you may be able to borrow the funds to pay your taxes (e.g., with a home equity loan). If these options aren't available to you, you may want to request an installment agreement from the IRS. If you're in serious financial trouble, you may want to consider more drastic options, such as an offer in compromise.

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

 

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