Can't Pay Your Taxes? Payment Due Date Extended Because of COVID-19
Article Highlights: - Automatic 2019 filing and payment extensions
- If you can’t pay
- Loans
- Credit card payments
- IRS installment agreement
- Retirement funds
In an unprecedented move to dampen the economic hardship of the COVID-19 virus, the IRS has given taxpayers until July 15th to file their 2019 returns and pay their 2019 tax liability and without having to file a request for extension of time. The due date has also been put off to July 15 for some 2020 estimated tax payments. No penalties or interest will apply during the extended filing period.
Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual failed to make adequate estimated tax payments during the year. This can be a huge problem for those who are unable to pay their liability.
If you are currently unable to pay the tax you owe, this extension of the payment due date gives you additional time to make arrangements. It is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than be subjected to the government’s penalties and interest for payments made after July 15, 2020. Here are a few options to consider.
- Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
- Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the taxes due and pay the higher credit card interest rates.
- Short-Term Payment Plan – If you are able to fully pay the tax owed within 120 days, you can apply for a short-term payment plan online at the IRS web site. You won’t be charged a set-up fee, but will still have to pay penalties and interest until the balance owed is fully paid.
- Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.
- Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59˝, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.
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