As unpaid tax liabilities are subject to interest and penalty charges, it is always better to pay your taxes on time. Even if you are unable to pay your full tax dues, you must file your income tax return to avoid the penalty of ‘failure to file’. You will continue to be charged the ‘failure to pay’ penalty but that is much lower than the ‘failure to file’ penalty.
Payment Option – Credit Card
A tax payer can opt to send a check or money order payable to the “United States Treasury”. Alternatively he can transfer the money electronically from his bank account or pay with his credit card. In both the latter options, transaction or convenience fees will have to be borne by the tax payer.
Some tax payers feel that by putting the tax payable onto the credit card they can successfully make their payments on time. The pitfall to watch out for in such a scenario is the case where the taxpayer is unable to meet his credit card dues on time. The credit card company then starts to pile on the penalty interest. So do your math well and figure out whose penalty charges are higher – the IRS or the credit card company.
Payment Option - Installment
A tax payer may also enter into an installment agreement to schedule monthly payments of tax. If he desires to enter into such an agreement he will need to submit Form 9465 along with the return for which full payment has not been made.
Except for the case where the installment payment is made by a direct debit from the tax payer’s account, a one time installment agreement fee of $105 is charged. In the direct debit situation, there is a reduced charge of $52.
Options offered by the IRS under the installment scheme include payroll deduction by the taxpayer’s employer, direct debit from his/her account, payment through check or money order, Electronic Federal Tax Payment System, credit cards, phone and internet banking.
In this installment option, the tax payer will have to specify the exact amount and the date on which he/she will make the tax payment. Hence, the amount and the date should be determined in such a manner that there is little or no chance of a default.
An important point to remember is that if you delay payment of taxes due, over a period of time, you will end up paying a higher amount as any scheme opted for has its own specific application and processing charges.
And finally, regardless of which method you choose to pay your taxes, you must pay at least some part on time or else you will soon be struggling with mounting interest and penalty charges.