How to Pay Back Taxes You Owe the IRS
Fulfill your IRS tax obligations. Learn to understand and manage outstanding tax debt through various payment methods and flexible solutions.
Fulfill your IRS tax obligations. Learn to understand and manage outstanding tax debt through various payment methods and flexible solutions.
Understanding how to address back taxes is important for individuals with an outstanding balance. This article clarifies the steps for determining tax liabilities and explores various payment avenues. It provides guidance on direct payment methods and options for establishing payment arrangements with the Internal Revenue Service (IRS).
Before addressing any outstanding tax balance, it is important to accurately determine the amount owed to the IRS. This amount can originate from a filed tax return, where the calculated tax liability exceeds payments made through withholding or estimated taxes. Individuals may also discover a tax due through official IRS correspondence.
Two common types of IRS notices that indicate a tax due are CP14 and CP2000. A CP14 notice, often referred to as a “Notice of Tax Due and Demand for Payment,” is sent when you owe money on taxes, penalties, or interest. It specifies the amount due and a payment deadline, typically 21 days from the notice date for amounts under $100,000, and 10 days for amounts $100,000 or more. If the balance is paid in full by the due date on a CP14 notice, interest generally does not apply.
A CP2000 notice, or “underreporter inquiry,” is issued when the IRS identifies a discrepancy between the income or payment information reported on your tax return and information received from third parties, such as employers or financial institutions. This notice proposes changes to your tax return, which may result in additional tax, penalties, and interest. It is important to remember that a CP2000 notice is not a bill but a proposal, and the amount stated is not yet final. Responding promptly to these notices is important to avoid further penalties.
You can also check your tax balance and review your tax records directly through your IRS online account. This platform provides access to your payment history, any scheduled payments, and details of existing payment plans. The online account can also provide digital copies of certain notices from the IRS.
Penalties and interest accrue on unpaid tax balances from the original due date of the payment, which for most individual federal income tax returns is typically April 15. If this date falls on a weekend or holiday, the deadline shifts to the next business day. An extension to file your return, obtained by filing Form 4868, gives you until October 15 to submit your return, but it does not extend the time to pay any taxes owed.
Once the amount of tax due has been identified, several direct payment methods are available to remit funds to the IRS. Each method offers a distinct way to ensure your payment is received.
IRS Direct Pay is a free online service that allows taxpayers to pay directly from their checking or savings account. Payments can be scheduled up to 365 days in advance, and you can receive an email confirmation. This platform also allows for modifications or cancellations of scheduled payments up to two business days before the payment date.
Payments can also be made using a debit card, credit card, or digital wallet through third-party payment processors. While the IRS does not charge a fee for these transactions, the payment processors typically impose their own fees. These third-party options are accessible through the IRS website or its official mobile application, IRS2Go.
The Electronic Federal Tax Payment System (EFTPS) is a free service that allows individuals and businesses to make federal tax payments electronically. Enrollment is required for EFTPS and can be done online or by phone. Once enrolled, you can schedule payments 24/7, up to 365 days in advance, and receive an immediate acknowledgment number for your records.
For those who prefer traditional methods, payments can be made by check or money order. Make the check or money order payable to the “U.S. Treasury.” Include your name, address, daytime phone number, Social Security number, the tax year, and the related tax form (e.g., Form 1040-V, Payment Voucher) on the payment. The mailing address for payments varies based on your geographic location and the form being filed, so consult IRS instructions for the correct address.
Cash payments are also an option through approved retail partners. The IRS works with payment processors that facilitate cash payments at participating retail locations. This method typically involves a fee charged by the third-party processor.
When a taxpayer cannot pay their full tax liability immediately, the IRS offers several arrangements to pay over an extended period. These options can help manage the financial burden while working towards resolving the tax debt.
An Installment Agreement (IA) allows taxpayers to make monthly payments for up to 72 months. To qualify, individuals generally must have filed all required tax returns and owe $50,000 or less in combined tax, penalties, and interest for long-term plans, or up to $100,000 for short-term plans (up to 180 days). Applying for an IA can be done most quickly through the IRS Online Payment Agreement application tool on the IRS website, which often provides immediate approval. Alternatively, taxpayers can submit Form 9465, Installment Agreement Request, by mail or apply by calling the IRS directly.
Even with an installment agreement, interest and penalties continue to accrue on the unpaid balance. A setup fee may apply, with reduced fees for low-income taxpayers or those who agree to direct debit payments.
An Offer in Compromise (OIC) allows certain taxpayers to settle their tax debt for a lower amount than what they originally owe. The IRS may accept an OIC if there is doubt as to the collectibility of the debt (meaning the taxpayer cannot pay the full amount), doubt as to the liability (a genuine dispute about whether the tax is owed), or to promote effective tax administration (where collecting the full amount would cause economic hardship or be unfair).
To be eligible for an OIC, taxpayers must have filed all required tax returns, made all necessary estimated tax payments for the current year, and not be in an open bankruptcy proceeding. The application process involves submitting Form 656, Offer in Compromise, along with detailed financial information. A non-refundable application fee is usually required, though it can be waived for low-income individuals. An initial payment is also generally required when submitting the application.
For taxpayers facing immediate financial hardship, a temporary delay in collection may be an option. This arrangement means the IRS will temporarily postpone collection actions until the taxpayer’s financial situation improves. During this period, penalties and interest continue to accrue. The IRS will review the taxpayer’s financial condition to determine if this option is appropriate and for how long collection should be delayed.