When the IRS sends you a Notice of Federal Tax Levy, it will grab your property and auction or sell it to satisfy your tax debt. The IRS will send you a Notice of Federal Tax Lien when it has acquired the right to seize your personal property (your house, your furniture, your antique galleon). And when the IRS does not get its money, it goes after its money. Not paying could put you in danger of defaulting on the installment agreement. Yes, the IRS will get its money.Īs with any other debt, missing a payment or multiple payments can make for a bad day. If you are supposed to get an income tax refund in any tax year while you are making payments on an installment plan, your refund will be applied toward what you still owe the IRS. $43 for eligible low-income individuals (your income is 250 percent or lower than the poverty level set by the Department of Health and Human Services).
$105 if you will be paying manually (sending in payments by mail or online).$52 if you set up an automatic debit agreement.And making payments on your unpaid taxes is what an installment agreement is all about. Now, this simple example doesn't take into account any payments you make on your tax during the year, but it should give you an idea of how large tax debt can grow and grow. So you would owe $325 for every month you don't pay on top of the $5,000 in taxes you already owe the IRS. We'll calculate the interest for one month. Let's take the above example again, in which you owe the IRS $5,000.
The interest rate on unpaid tax is "the federal short-term rate plus 3 percent." As of the second quarter of 2008, the interest rate on unpaid tax (for individual taxpayers, not businesses) is 6 percent. As with late-payment penalties, the sooner you pay off the tax, the less interest you'll pay. This interest, which is compounded daily, will continue to accrue for as long as you owe tax. Remember, a filing extension is not a payment extension. In addition to late-payment penalties, any tax you owe after April 15 will accrue interest. If you do not apply for the filing extension, the late-filing payment fee is 4.5 percent of the unpaid tax per month up to five months. If you file your tax return on time and apply for an installment agreement, the IRS reduces your late-payment penalty to 0.25 percent per month. So the sooner you pay off the unpaid taxes, the less you will pay in penalties. Using the example above, the late-payment penalty would be: This penalty continues until you have paid the maximum 25 percent penalty. The penalty is 0.5 percent of the amount you owe per month. If you don't pay at least $4,500 when you file Form 4868, the IRS will assess a late-payment penalty. For example, let's say you owe $5,000 in taxes: The IRS assesses a late-payment penalty if you do not pay 90 percent or more of your unpaid tax by April 15, even if you file Form 4868. What will the IRS do to you? Read on.Īs mentioned, filing an extension does not suspend interest from accruing on your tax liability, nor does it necessarily prevent penalties for not paying by the due date. You didn't file on time, and you didn't file for an extension. Of course, whether this is wise depends on your financial situation and your credit card's interest rate. If you don't have enough money in your bank account to pay the estimated tax, you have the option of paying taxes by credit card. Every little bit helps reduce penalties and interest. If you can't pay all of it, you have the option of paying whatever you can manage at the time. Any tax you owe begins to accrue late payment penalties and interest after April 15. The IRS highly recommends making a payment on your estimated tax liability when you file Form 4868, because a filing extension is not a payment extension.
You can file Form 4868 by mail, over the Internet, via tax software or even by telephone.