If you’ve received a dreaded tax debt notice in the mail, you owe the IRS additional payments on a previous year’s income. Tax debts are different from other forms of debt because if you leave them unpaid, they will remain on your credit history forever. Once paid, within seven years they’ll expire off your credit report. Here are the ways you can go about paying off your tax debt.
When you receive the paperwork from the IRS, go back and double-check your tax return for the year in question. Look over your records to see if they match what the IRS is reporting to you. If you don’t agree with the charges, follow the instructions on pages 3-5 of the packet. If you find that they’re charging you erroneously, you can get the charges removed by sending in the correct form and proof that they’re mistaken. Once you send in the form, you can wait anywhere from six to eight weeks for them to process your paperwork and reply. If it’s been longer than eight weeks since you responded, you may want to call the IRS and see what the status of your account is.
If you agree with the charges after reviewing your tax return for the year in question, paying off the debt in full is the best and least expensive way to relieve the burden. You won’t accrue any extra charges, penalties, or interest if it’s paid off, in full, immediately. That’s not possible for all tax payers, though. In that case the IRS offers a couple options.
You can choose to pay off the full debt with a payment installment program. You choose how much they charge you each month and how you pay. The easiest way may be to let them debit your bank account automatically on the payment date that you select. You can also pay by check, money order, or credit card. Pay off as much as you can each month to avoid accruing more interest and charges on the remaining balance.
If you can’t afford to pay the whole amount, you might qualify for what is known as an offer in compromise (OIC). To qualify you must be unable to pay the full amount, not be in the process of a bankruptcy, and you must be able to pay the $150 application fee and at least 20% of the full debt. You’ll fill out form 656 where you’ll confirm your identity and offer a settlement to the debt that you can afford. You’ll also need to provide other information to the IRS including bank statements, pay stubs, and property levies so they can assess how much they believe you should be able to afford. Once the settlement is approved, you must pay any and all tax debts in full and immediately and file your taxes on time for the next five years. If you fail to do so, your OIC will be reversed. If you choose to do the OIC, you must also be sure to respond to any and all correspondence from the IRS. It could take several months to process your OIC so be ready to wait.
If you have any questions or concerns throughout the payment process, don’t hesitate to call the IRS phone number and either obtain the information needed through their automated system or choose to speak with a tax assistor. Even though this can be stressful and irritating, be as polite as you can with the person on the other end and you may find your tax debt reduced.