Paying for taxes

[nidena]

I had tax bills for both Federal and State for 2021.  $2350 and $1100, respectively.

I went ahead and just paid them on my CCs but friends were saying that I could have done a payment plan.

I saw no such options on the websites for either.

What would they have been talking about?

[minnesotapaintlady]

You have to apply online.

www.irs.gov/payments/online-payment-agreement-application

It's not free.  You have to pay accrued interest and penalties as you go.

[nidena]

I did see that part and did click on it.  I eventually reached a screen where it said "You're better off paying the bill in whole" (or something like that) so I had to wonder if there was something different or something that I was missing.

Someone else had suggested not paying on time and letting the IRS send me notices which also had me baffled.

In any case, if there's the choice between accrued interest on a CC and accrued interest AND penalties, I'll just deal with the CC interest.

As it is, my AmEx raised my limit two weeks after I used it to pay for my Federal bill.  

[chiver78]

Amex raised mine recently, too. I had just put a trio of large (~$1k) purchases on their payment plan to suspend interest, with a $15 monthly fee over the payment term.    whatever. 

FWIW, I'd have paid via card, too. at least you're getting perk points for your troubles. 

[minnesotapaintlady]

I don't think owing the IRS is ever a good plan.  They are way too powerful and one accidental late payment can mean your bank accounts get locked or even drained.  Best to just pay in full however you need to.

[azucena]

Who eats the ~3% credit card fee?  You or the IRS?  Our net tax liability was less this year to do married filing separately, so I owed $11k and DH gets a refund for $9k.  Thinking I messed up slightly if I could have charged that and earned points.  Not sure if we'll be in a similar situation next year.  I think this year it had to do with the extra/early child tax credit and essentially we were overpaid which is why we owe.

[minnesotapaintlady]

Apr 28, 2022 10:54:47 GMT -5 azucena said:

Who eats the ~3% credit card fee?  You or the IRS?  Our net tax liability was less this year to do married filing separately, so I owed $11k and DH gets a refund for $9k.  Thinking I messed up slightly if I could have charged that and earned points.  Not sure if we'll be in a similar situation next year.  I think this year it had to do with the extra/early child tax credit and essentially we were overpaid which is why we owe.

You're charged something like 1.98% fee to pay taxes by credit card so it pretty much negates any points.

[nidena]

Apr 28, 2022 11:11:43 GMT -5 minnesotapaintlady said:

Apr 28, 2022 10:54:47 GMT -5 azucena said:

Who eats the ~3% credit card fee?  You or the IRS?  Our net tax liability was less this year to do married filing separately, so I owed $11k and DH gets a refund for $9k.  Thinking I messed up slightly if I could have charged that and earned points.  Not sure if we'll be in a similar situation next year.  I think this year it had to do with the extra/early child tax credit and essentially we were overpaid which is why we owe.

You're charged something like 1.98% fee to pay taxes by credit card so it pretty much negates any points.

I paid a 2.49% fee to both Federal and State for paying with my CC.  And, yeah, the points weren't anything special.

[TheOtherMe]

Maybe under a payment play there is no forgiveness but a person should now they can't make the next payment and be proactive.  

The IRS doesn't just take your stuff away.  There are all kinds of notices that go out before that happens.  My next door neighbors way back in the way couldn't pay their taxes.  They ignored every single letter sent to them.  So a Revenue Officer came to their door.  They didn't want the amount in full.  They wanted them to come to the office and see what they could afford to pay.  

Neighbors freaked out and came over saying they will be taking our house at any moment.  That is not the way it works.

Their financial circumstances had changed so much due to a business failing, that their unpaid taxes were written off as uncollectible.

[NoNamePerson]

Apr 29, 2022 7:47:48 GMT -5 TheOtherMe said:

Maybe under a payment play there is no forgiveness but a person should now they can't make the next payment and be proactive.  

The IRS doesn't just take your stuff away.  There are all kinds of notices that go out before that happens.  My next door neighbors way back in the way couldn't pay their taxes.  They ignored every single letter sent to them.  So a Revenue Officer came to their door.  They didn't want the amount in full.  They wanted them to come to the office and see what they could afford to pay.  

Neighbors freaked out and came over saying they will be taking our house at any moment.  That is not the way it works.

Their financial circumstances had changed so much due to a business failing, that their unpaid taxes were written off as uncollectible.

I used to tell folks the worse thing they could do was ignore the IRS. They were not going to go away but if a person communicated with them things could get worked out. 

[TheOtherMe]

I am an IRS retiree.  I believe it is still true that they will work with you.  The financial statement allows a certain amount of $$$ for the household and each person in it.  If your house is sold, you will never pay any money.

Open the letter and call the number.  Sadly, the employees can no longer contact you first.  That puts the onus on the taxpayer to call the number on the letter.

When I was there, no caller ID, so we call people.  I was never questioned about if I was really from the IRS.

[CCL]

A couple years ago I received a letter from the IRS regarding recharacterization of a Roth conversion. They seemed to think I owed a couple thousand dollars. I knew I didn't. We corresponded back and forth by mail for 6 months.

Eventually, they decided I owed something like $42. I didn't agree with that amount either, but sent them the money anyway. I figured it was worth $42 to be done.

I don't remember all the details, but some of the stuff they came up with was incorrect. They never contacted me by phone and were never threatening at all. They just requested documentation to prove what I was claiming on my return. Of course, I had everything, so that wasn't a problem.

[TheOtherMe]

I did some 1099 work for a friend.  It earned a little over $3000, which I reported on my tax return.  My friend put  .00 cents after the amount I was paid.

Apparently the computer that I was paid $30,000.  Lots of correspondence involved to get that and all of the penalties reversed.  We finally sent in copies of the canceled checks.

Shows how long ago that was.

[djAdvocate]

Apr 26, 2022 11:42:39 GMT -5 nidena said:

I had tax bills for both Federal and State for 2021.  $2350 and $1100, respectively.

I went ahead and just paid them on my CCs but friends were saying that I could have done a payment plan.

I saw no such options on the websites for either.

What would they have been talking about?

sure.  you can do a payment plan.
but my experience is that they instantly charge you a 10% late fee, plus about 1% interest per month.

compare that to 3% and 1.5% per month.  it would take at least 14 months to make up the difference.

rule of thumb: if you have PERSONAL credit that works to pay taxes, it is the best method.  if you don't, it leaves you only the bad option.

[TheOtherMe]

Late filing penalty is 5%, failure to pay penalty is .05% per month up to a maximum of 25%.  Interest is currently 4%,  

Fee for setting it up is www.irs.gov/payments/online-payment-agreement-application

If we approve your payment plan, one of the following fees will be added to your tax bill.



Plan Options and Costs

Pay Now



$0 setup fee

No future penalties or interest added

Pay amount owed in full today directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.



Short-term Payment Plan (180 days or less)



$0 setup fee

Plus accrued penalties and interest until the balance is paid in full

After applying for a short-term payment plan, you can pay the amount owed directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.

Long-term Payment Plan (Installment Agreement) (Pay monthly)



Pay monthly through automatic withdrawals



$31 setup fee (low income: setup fee waived)

Plus accrued penalties and interest until the balance is paid in full

Pay amount owed through Direct Debit (automatic payments from your checking account), also known as a Direct Debit Installment Agreement (DDIA). This is required if your balance is more than $25,000.



Pay each month (non-Direct Debit)



$130 setup fee (low income: $43 setup fee that may be reimbursed if certain conditions are met)

Plus accrued penalties and interest until the balance is paid in full

After applying for a long-term payment plan, pay amount owed through non-Direct Debit (not automated) monthly payments, including payments directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.



Revise an Existing Payment Plan (Installment Agreement) or Reinstate After Default



$10 fee, which may be reimbursed if you are identified as low income and certain conditions are met.

[djAdvocate]

that is way more competitive than when i last did it.

with those kind of terms, it would come down to how quickly you could repay it.  if it will take a while, the IRS option looks pretty favorable.

[NoNamePerson]

May 1, 2022 13:34:50 GMT -5 djAdvocate said:

that is way more competitive than when i last did it.

with those kind of terms, it would come down to how quickly you could repay it.  if it will take a while, the IRS option looks pretty favorable.

I could be wrong but the rates started reflecting the interest rates of the times a while back. So stands to reason they would be lower now. I also vaguely that if it wasn't a large amount the IRS "sorta" expected it to be paid off before the next filing date. But I am dredging up memories from the 80's!!

[nidena]

Well, I've already paid off the Federal chunk that I put on the AmEx.  That happened yesterday with my May 1st paycheck.  The State portion will be paid off with the June paycheck.

I just had no idea that I had been bumped into the next tax bracket.  The amount that I owed was literally the 22% of the amount over $40,000 that I had in taxable income this past year.  I've never been in the third tax bracket my whole adult life so I didn't think to check; which meant I didn't plan for it.  I took it for granted that selecting Single-Zero would have been sufficient as it had been the past 26 years.  lol.

[NoNamePerson]

May 1, 2022 14:14:16 GMT -5 nidena said:

Well, I've already paid off the Federal chunk that I put on the AmEx.  That happened yesterday with my May 1st paycheck.  The State portion will be paid off with the June paycheck.

I just had no idea that I had been bumped into the next tax bracket.  The amount that I owed was literally the 22% of the amount over $40,000 that I had in taxable income this past year.  I've never been in the third tax bracket my whole adult life so I didn't think to check; which meant I didn't plan for it.  I took it for granted that selecting Single-Zero would have been sufficient as it had been the past 26 years.  lol.

Hey, it's happened to most of us at some time or another. I got "caught" one time when boss man shocked me with gigantic bonus and I DID THE PAYROLL.  Now that makes one say Well Dudh Dummy Me   

Glad you are getting it paid off whatever the manner or reason. I hate debt of any kind hanging over my head  

[nidena]

May 1, 2022 12:41:09 GMT -5 TheOtherMe said:

Late filing penalty is 5%, failure to pay penalty is .05% per month up to a maximum of 25%.  Interest is currently 4%,  

Fee for setting it up is www.irs.gov/payments/online-payment-agreement-application

If we approve your payment plan, one of the following fees will be added to your tax bill.



Plan Options and Costs

Pay Now



$0 setup fee

No future penalties or interest added

Pay amount owed in full today directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.



Short-term Payment Plan (180 days or less)



$0 setup fee

Plus accrued penalties and interest until the balance is paid in full

After applying for a short-term payment plan, you can pay the amount owed directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.

Long-term Payment Plan (Installment Agreement) (Pay monthly)



Pay monthly through automatic withdrawals



$31 setup fee (low income: setup fee waived)

Plus accrued penalties and interest until the balance is paid in full

Pay amount owed through Direct Debit (automatic payments from your checking account), also known as a Direct Debit Installment Agreement (DDIA). This is required if your balance is more than $25,000.



Pay each month (non-Direct Debit)



$130 setup fee (low income: $43 setup fee that may be reimbursed if certain conditions are met)

Plus accrued penalties and interest until the balance is paid in full

After applying for a long-term payment plan, pay amount owed through non-Direct Debit (not automated) monthly payments, including payments directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.

Fees apply when paying by card.



Revise an Existing Payment Plan (Installment Agreement) or Reinstate After Default



$10 fee, which may be reimbursed if you are identified as low income and certain conditions are met.

The interesting thing about this is that the various buttons to choose from--the payment plan options--were greyed out for me.  I'm concluding they become "active" only if you have a truly ginormous tax bill.  It would be interesting to know what "filter" is populated in the site coding to make it active.  Like, what is the "magic" number?  lol.

[TheOtherMe]

Obviously I don't run the website.  When I was working (retired 1995) so a long time ago, I was authorized to do installment agreements for $5000 and I was not in Collections.

[Deleted]

One nasty (but understandable) little detail on the payment plans: you'll never get a refund till the debt is paid.

The Ex liquidated a $6,000 IRA when he was unemployed and scrimping for cash. He didn't withhold taxes on it, of course. At least he was over 59 1/2 so no 10% penalty. He had no money at tax time, as usual, and I didn't feel like paying them a chunk out of my savings, so they set up a payment plan. At the time there was no charge. I kept up the monthly payments and the year before we divorced I filed as Married Filing Separately. He was out of the home and I figured he wouldn't file anything even if he needed to. I had a refund coming. The IRS took it all to pay the outstanding debt.

I was not happy.

[TheOtherMe]

Nor should you get a refund until the debt is paid.  Even if you are not on a payment plan and you have debt to the IRS, child support, student loans, etc., you will not receive a refund.