Paying Taxes

April 15th isn't just the day you must file your federal income tax returns for the previous year. It's also the day you are legally required to pay any tax you owe. In the past, most Americans completed this task by attaching a check to their return with a paperclip before mailing it to the Internal Revenue Service (IRS). Times have changed, and roughly 90% of U.S. taxpayers file their returns online. This means the days of paying by check are long gone for most taxpayers, although it's still an option.

While the IRS is often viewed as an agency that has failed to embrace modern technology, it has made remarkable strides over the past few years to provide taxpayers with various options for paying their taxes. It has also made it easier for taxpayers to set up payment plans if they lack the resources to pay their taxes when they are due. 

The following sections will explain your options for paying your taxes or setting up an installment agreement with the IRS.

Finding How Much You Owe

Before assessing your options for paying your tax bill, you must first find how much you owe by preparing your federal income tax return. For most taxpayers, this involves completing a Form 1040, U.S. Individual Income Tax Return. Once you have completed your return, you will know whether you owe taxes and, if so, how much. If you are due a tax refund, you are not required to make any payments.

You generally have four options when preparing a return:

• Online tax software
• Directly filing a return with the IRS (new for 2024)
• Professional tax preparer
• Filling out the necessary tax forms and filing by mail

If you have an adjusted gross income of $79,000 or less, you can take advantage of the IRS's free file program. The program lets you use the tax preparation software from major providers who have partnered with the IRS for free.

IRS Payment Options

The IRS encourages taxpayers to make their payments online and offers two options for doing so without setting up an account with the agency:

• Direct payments from a bank account: The IRS charges no fees for taxpayer payments directly from their checking or savings account. Payments can be scheduled up to a year in advance.
• Payment by debit card, credit card, or digital wallet: Processing fees may apply.

Taxpayers who file by mail have the option of attaching a check to their return. You can also pay your tax bill by phone using the Electronic Federal Tax Payment System (EFTPS). Finally, payments can be made using the IRS's smartphone app: IRS2Go.

IRS Payment Plans

If you can't pay what you owe when you file your return, the IRS will often agree to an installment agreement allowing you to pay your tax bill through monthly payments. This should only be an option for taxpayers who cannot pay the full amount of their tax bill because you will continue to accrue IRS penalties and interest while the payment plan is in effect, but the penalties will be reduced. IRS payment plans fall into two categories:

• Short-term payment plans: These plans give taxpayers up to 180 days (six months) to pay their full tax liability. There is no setup fee and you may request a plan using the IRS's online payment agreement (OPA) application or by calling the IRS at 1-800-829-1040.
• Long-term payment plans: If you can't pay your tax bill within 180 days, the IRS may agree to a long-term payment plan that allows you to make monthly payments. The IRS will charge a fee for setting up a long-term payment plan, but it may be waived for low-income taxpayers. These plans may be requested using the OPA, calling the IRS, or completing and filing Form 9465, Installment Agreement Request.

What if I Don't Pay?

The IRS starts charging a failure to pay penalty and interest beginning April 16th if you don't pay your tax bill when it's due. The failure to pay penalty is different than the failure to file penalty, which will be imposed if you don't file your return by the original due date or request an extension of time to file. The IRS will impose both if you don't file or pay. Somethings to know about the failure to pay penalty:

• The failure to file penalty is significantly higher than the failure to pay penalty, so you should file a return, even if you don't pay the amount due.
• The failure to file penalty is 5% of your unpaid taxes and compounds each month or part of a month you don't file until it reaches a maximum penalty amount of 25% of your tax bill. 
• The failure to pay penalty is 0.5% of your unpaid taxes, compounded monthly, until it reaches a maximum of 25%. 

If you fail to both file and pay, the failure to file penalty is reduced by the late payment penalty, so the penalty would be 5% for those months. As a result, if you are assessed both penalties, you will owe a maximum of 47.5% of your unpaid tax bill. There is a minimum failure to file penalty, which is the smaller of $485 for returns to be filed for 2024 or 100% of the tax that should have been shown on the return.

In addition to any penalties, the IRS will assess interest charges on your unpaid taxes. The IRS's interest rate on the unpaid amount of tax is usually the federal short-term rate plus 3% for individuals.

Still Have Questions? A Tax Lawyer Can Help

If you don't know how to pay your tax bill or need help setting up an installment plan with the IRS, a local tax lawyer can help. A tax attorney understands tax law, tax penalties, and the IRS's payment requirements. They will also have experience setting up installment plans, which can stop the IRS from trying to collect on your tax bill.