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Posted on Sunday, January 13, 2002
Federal taxes
By Curt Anderson
Associated Press
WASHINGTON — Figure to owe the Internal Revenue Service a big tax bill this year but wonder where the money will come from? There is a wide array of options for those who can’t pay all at once.
Taxpayers who are unable to file their tax return by midnight April 15 also can ask for a four-month extension. Any taxes owed, however, must be paid on time to avoid interest and late penalties.
Taxpayers can ask the IRS for that outright extension by calling 1 (888) 796-1074 beginning March 1, or they can use IRS Form 4868.
If you need an additional two months — the IRS doesn’t grant these outright — use Form 2688.
Now, about that tax bill.
Here are some ways to pay
• Credit card. For a fee, taxpayers can use American Express, MasterCard or Discover to charge taxes due by calling either Official Payments Corp. at (800) 2PAY-TAX (272-9829) or PhoneCharge Inc. at (888) ALLTAXX (255-8299).
About 284,800 taxpayers used the service last year, even though Visa does not participate.
Some tax preparation software integrates filing and credit card payments into a single data transmission.
One thing to consider, tax experts say, is whether it is worth using a credit card that charges a high interest rate.
An IRS installment agreement charges 6 percent interest — the lowest rate since 1994 — plus a monthly late penalty of 0.25 percent for taxpayers who filed returns on time, 0.5 percent for those who didn’t.
• Electronic funds withdrawal. Taxpayers who file returns electronically can have their taxes due debited by the IRS from a checking or savings account. Taxpayers can specify the date for the debit, meaning they can file their return early and then wait as late as April 15 to pay the bill. About 363,600 taxpayers took this route last year.
• Installment agreement. IRS Form 9465 is used to request such a payment plan, which is guaranteed for taxpayers whose total liability doesn’t exceed $10,000, haven’t had an installment plan in the last five years and agree to pay the bill within three years or less, among other requirements.
Interest, late payment penalties and a processing fee also apply.
• Offer in compromise. For large unpaid tax liabilities, the IRS may accept a lesser amount if the taxpayer can’t pay. Form 656 is used to make such an offer, and the debt can often be paid off over time with fixed monthly payments.
If a taxpayer defaults, the entire original tax liability plus interest and penalties will be reinstated.
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