Well, time is getting closer and I’m already seeing it reflected in the local news and social media articles: what can folks do if they have to pay the IRS this year instead of getting a refund?
In reality, this is a fairly new issue. For many families, until the tax law changes from the 2017 bill took effect, nearly all W2 employees, unless they specifically managed otherwise, could depend on refunds – sometimes as much as five figures’ worth.
When the laws changed, those refunds changed, and then we entered the world of Covid, and even now, years later, regular folks still get caught short due to not having claimed the correct amount of withholding on their W4’s at work.
THAT’S easy to fix, but what if you find yourself short this year and have to pay? Unfortunately, not everyone will have the money to pay their taxes.
The Internal Revenue Service reports that as of 2021, more than 11 million Americans owed back taxes. With more people relying on the so-called gig economy, earning money by giving rides through platforms like Uber or through making deliveries through Doordash, unpaid tax bills and delinquent payments may rise. Couple that with the unwelcome surprise many Americans learned during the pandemic – that government benefits are taxable – and the withholding many wage earners have become used to isn’t the reality they’ve been operating in. You have to pay taxes on contract income and benefits, and often, it’s not automatically withheld.
I wanted to take a few minutes to share the options available to most taxpayers today, because I know how scary the IRS can be to deal with.
First things first? Don’t panic. While people get sent to jail over tax issues, it’s typically due to tax fraud and serious, willful crimes. Americans can’t be jailed simply because they’re unable to pay their income taxes. But the IRS can make your life difficult, with steep fines, property liens and seizing your bank accounts.
Second: Never ignore the problem. You still want to file your taxes on time even if you can’t make your payments. Not filing your taxes is a crime and you could find yourself in legal trouble for not doing so. You’ll also get hit with late filing fees. In some cases, you can set up monthly payment plans with the IRS which will allow you to pay your taxes in monthly installments. Payment plans aren’t without issue – you’ll still incur fees and penalties, meaning the total amount you’ll pay is far higher than your initial tax bill, but sometimes, you have to do what you have to do.
There’s one last piece of the puzzle that seems to come up every time I have a conversation about this, and that’s these national companies that promise to “lower your tax debt.” Officially, the IRS calls this an “Offer in Compromise” (OIC) and let me tell you, as a tax professional, the odds of the IRS cutting you this deal are slim and none. Less than one third of one percent of all taxpayers with a balance owed qualify for an OIC plan. Those big companies you hear on the radio? They’ll take your money, they’ll make you promises, and then? You’ll STILL owe the IRS the exact same amount.
Don’t confuse the IRS – the largest collection agency in the world – with the collections company that cut you a break on that old Diners Club card balance you defaulted on. The feds are not going to make an OIC on a balance of a few thousand dollars. If you’re struggling or worried about setting up a payment plan, don’t fret. It’s easy, and the team and I can help you sort it out.
Make it a great day,