46.5 Paying Taxes Due

If you owe tax on a return that you are mailing to the IRS, you may pay by check, money order, credit card, or debit card. Payments can also be made by direct debit from your account, either by phone or online using the IRS’s Electronic Federal Tax Payment System (EFTPS).

If paying by check or money order, make it payable to the “United States Treasury.” Write your Social Security number on the check or money order. The IRS encourages you to send Form 1040-V along with your payment, but the form is not required.

A credit card or debit card payment can be made by phone or over the Internet with a service provider that handles the transaction for the IRS. The service provider will impose a fee based on the amount you are paying. Go to www.irs.gov/e-pay.

IRS online or phone option for making payments.

The IRS’s Electronic Federal Tax Payment System (EFTPS) accepts online tax payments from individual as well as business taxpayers. You may use EFTPS to pay the balance due on your individual tax return or to pay estimated tax installments.

Payments are made by direct debit from an account that you designate when you enroll with EFTPS. Individual tax payments may be scheduled up to 365 days in advance and business taxes up to 120 days in advance. You can enroll online at www.eftps.gov.

Payments via EFTPS can also be made by phone after you enroll with EFTPS and set up a direct debit arrangement. Call 1-800-555-4477 for enrollment information.

Payments by electronic filers.

If you file electronically, you may pay taxes by authorizing a direct debit from your checking or savings account, or by using a credit or debit card. Check with the companies that process credit/debit card payments for the fee that will be imposed.

Installment agreements.

If you cannot pay the full amount due on your return when you file, but will be able to pay the full amount within 120 days, you may ask the IRS for a short-term extension by calling 1-800-829-1040 or using the Online Payment Agreement Application at www.irs.gov. The IRS will not charge a fee for a 120-day extension, but interest will be charged and a late payment penalty (46.9) might be imposed.

If you need more than 120 days, you can request an installment agreement on Form 9465 or by selecting “Payments” at www.irs.gov. Even if the IRS agrees to an installment arrangement, you will be charged interest and may have to pay a late payment penalty (46.9) on any tax not paid by the due date.

If you owe $10,000 or less and agree to pay the full amount owed within three years, your request for an installment agreement cannot be turned down, provided that for the previous five years, you (and your spouse if currently filing jointly) timely filed and paid the taxes due and did not have an installment agreement during that period. You must timely file and pay any taxes due while the agreement is in effect. In other cases, where you owe $25,000 or less in combined tax, interest and penalties, and agree to pay the total within 60 months, the IRS will generally agree to an installment plan.

The IRS may approve a request to make installment payments for less than the full amount you owe, but only after a thorough review of your financial circumstances and after you have sold assets and used home equity to reduce the tax bill. If agreed to, the IRS will reevaluate a partial payment plan every two years.

The IRS will usually inform you within 30 days if your proposed payment plan is accepted. If it is, you will have to pay a processing fee. Generally, the fee is $105, but the fee drops to $52 if payments are made by direct debit from your bank account. The user fee is $43 for individuals whose income does not exceed 250% of the poverty guidelines updated annually by the U.S. Department of Health and Human Services. When you apply for an installment agreement, whether on Form 9465, online (at IRS.gov), by phone, or face-to-face with an IRS employee, the IRS will automatically review the income information from your return to determine eligibility for the reduced fee. If the IRS approves a monthly installment plan without granting a reduced user fee and you think you qualify, you can request the reduced fee by filing Form 13844 with the IRS within 30 days of receiving the IRS’s acceptance notice.

If you are using an installment agreement to pay the tax due on a timely filed return (including extensions), the late payment penalty is reduced by half from .5% to .25% per month.

Offer in Compromise.

If your financial circumstances are dire and you believe you will be unable to pay what you owe even with an installment agreement, you may make an offer to pay off part of your unpaid balance using Form 656 (Offer in Compromise), as discussed in 48.9.