I can’t pay my federal tax bill. Now what?

Being unable to pay federal taxes does not mean you have to panic; it just means you need to know your options.

Every year, people in California file their federal tax returns and owe money. In fact, according to the Internal Revenue Service, some 26.5 million people had a sum due at the time of filing in 2013, the most recent year for which data is available.

For some people, making that payment is as simple as putting the check in the mail. For others, however, the tax bill creates a financial burden. Here are a few steps people in that position should take.

File your taxes

Regardless of whether or not someone is able to pay the bill, federal taxes should still be filed every year by April 15. Failing to do so could result in the following:

  • The IRS may complete the return on behalf of the taxpayer, but as NerdWallet points out, it may omit deductions and credits.
  • The taxpayer may have to pay as much as a 25 percent more on the tax bill due to penalties and fees.
  • The IRS could deny the taxpayer any refund check he or she may have otherwise been entitled to.

Also keep in mind that being up to date on taxes gives people access to certain federal aid programs as well as financial tools such as loans.

Contact the IRS

It is crucial to let the IRS know that the bill may not be paid immediately. This is not a time to panic; the IRS has a history of demonstrating its ability to work with people on alternatives. There are three common ways that people may satisfy their tax debt to the IRS: reaching an agreement on an installment plan, receiving an offer in compromise, or receiving an extension on the deadline to pay.

Certain taxpayers may qualify to get as much as 120 days to pay their tax bill. Under this extension, there will not be an additional fee, though interest on the amount owed may accrue every month until the balance is paid. The IRS may also delay the collection of money on an account until the taxpayer is able to pay without infringing upon his or her ability to meet basic needs.

When 120 days is not enough time, there is the option of the installation agreement. This provides people with a plan to make monthly payments over a certain period of time. According to the IRS, those payments could be made electronically, through a direct debit or even through a payroll deduction. There is a fee associated with the installment plan, depending on how the payments are made.

The last resort is an offer in compromise. This is when the taxpayer and the IRS decide on a number less than what is owed, the taxpayer pays it and the liability is settled.

There are certain qualifications that must be met in each of these scenarios. For example, the taxpayer must be current on all filing requirements. Also, people who are in the middle of a bankruptcy filing may not be eligible.

Failing to pay taxes may be considered a crime, so it is essential to resolve the issue before it escalates to that level. Anyone who has concerns about this issue should speak with a tax attorney in California.