Personal finance

Your unpaid taxes still accrue interest even though IRS suspends collection notices. Here are some payment options to consider

damircudic | E+ | Getty Images

As the IRS struggles with a backlog of millions of returns, the agency has temporarily stopped sending out more than a dozen types of automated notices, including some for unpaid taxes.  

However, a suspended notice doesn’t mean interest stops accruing on outstanding balances, said National Taxpayer Advocate Erin Collins during a Senate Finance Committee hearing on Thursday.

“I was a big proponent of shutting down the notices and suspending them,” she said. “But I want to make sure those folks understand the interest continues to accrue.”

More from Personal Finance:
Your tax return may get rejected if last year’s is still pending
Here’s what every taxpayer needs to know this season
How to answer the ‘virtual currency’ question on your tax return

Although the agency has been difficult to reach by phone, there are a few ways to resolve unpaid taxes. “The IRS is willing to work with you,” Collins said. 

1. Installment agreements

If you can’t afford to cover your full balance, you may apply for an installment agreement, a long-term monthly payment plan.

You may qualify if you owe $50,000 or less, including tax, penalties and interest, and the IRS won’t approve the plan with unfiled returns.

Of course, you’ll want to agree to an affordable monthly payment, and you’ll need to pay future taxes on time to avoid defaulting on your agreement, the Taxpayer Advocate warns.

“It’s a very quick process,” Collins said, explaining you can apply online, by phone or through a bot.

2. Offer in compromise

Another option, known as an offer in compromise, may allow you to settle for less than you owe. However, the IRS encourages taxpayers to explore “all other payment options” first.

“If you can show that you have financial challenges, you may be able to reduce the liability and settle it with finality to put the tax behind you so you can move forward,” Collins said.

To qualify, you need to be current on all returns, unless there’s a valid extension on file, and up-to-date with required estimated tax payments. 

You may use the Offer In Compromise Pre-Qualifier tool to gauge your eligibility and submit an application from the Offer in Compromise Booklet.

3. Currently not collectible

There’s also a “currently not collectible” status, where the IRS may back off from trying to receive unpaid balances for a period of time, Collins explained. 

However, if approved, your outstanding debt may still accrue penalties and interest, and the IRS may use your future refunds to cover the balance, according to the Taxpayer Advocate. And you’ll need to stay current on future taxes.

To qualify, you may need to file past due returns, along with Form 433-A, Form 433-F or Form 433-B and other documents, to show proof of your financial hardship and inability to pay.

Products You May Like

Articles You May Like

Why Mark Cuban keeps working, even though he wanted to retire at 35: ‘I’m too competitive’
Amphibious houses and floating cities could protect coastal communities from sea-level rise
Stock market losses wipe out $9 trillion from Americans’ wealth
Justice Department takes JetBlue and American to court over their partnership in New York and Boston
Trump-linked SPAC changes address to UPS Store as investors pull more than $130 million