When you owe the IRS it can be an unsettling experience. If you owe back taxes, you probably want to know how to pay off your tax debt as quickly as possible in order to have peace of mind. Fortunately, the IRS accepts tax payments in several forms, including IRS Direct Pay, Cash (In Person), Offer in Compromise, and more. Here are a few ways to settle your tax debt based on whether you can or cannot pay the full tax amount you owe.
Best Ways to Pay IRS Tax Debt When You Can Pay Your Tax Debt in Full
If you can afford to pay the full amount of your tax debt, consider any of the following options:
IRS Direct Pay
If you are looking for a way to pay your tax debt for free, this option is the best. Direct Pay allows you to pay a tax bill directly from your checking account or savings account without incurring any fees. Once the payment process is completed, you will get instant confirmation.
Electronic Funds Withdrawal (EFW)
Electronic Funds Withdrawal (EFW) is another possible option to pay your back taxes conveniently and quickly. This method is ideal for taxpayers who e-file their federal taxes using tax preparation software, a tax professional, or IRS Free File. The EFW allows you to submit payments via direct debit from your bank account.
Ideally, with this option, you can schedule your payments for up to one year in advance. However, the downside with this option is that your financial institution will charge you some fees to complete the transaction.
Electronic Federal Tax Payment System (EFTPS)
You can also leverage the Federal government’s Electronic Federal Tax Payment System (EFTPS) to pay your tax balance due. With this option, you will need a Personal Identification Number (PIN), Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN), an internet password, and a secure browser to make a successful payment through the system. This option also allows you to schedule your payments for up to one year in advance.
Debit Card or Credit Card
You can also use your debit or credit card to make a tax payment online or over the phone. Although the IRS offers this service for free, service providers such as Pay1040, PayUSAtax, and ACI Payments, Inc may charge a fee. Debit card payments may also attract charges of up to $4, depending on the transaction. However, there is no fixed fee for credit card transactions as the fee is typically determined by the percentage of the tax payment amount.
Check or Money Order
You can also pay the tax you owe the IRS by check or money order. If you are considering this option, you have to complete and submit Form 1040-V along with your tax payment. Your check should also include name(s), address, phone number, SSN or ITIN, payment amount, type of individual income tax return, the tax year, and the SSN of the first person listed on your Form 1040. Notably, your check should be written out to the United States Treasury.
Cash (In Person)
You can also pay your tax bill using cash. You are not allowed to mail cash to the IRS, so you will need to visit a retail store or a cash processing company that offers the service. Alternatively, if cash is your tax payment option, you can pay your tax bill at an IRS Taxpayer Assistance Centers (TAC).
Best Ways to Pay IRS Tax Debt When You Cannot Pay Your Tax Debt in Full
Consider any of the following IRS Fresh Start Programs if you cannot afford to pay your tax debt:
IRS Payment Plans (Installment Agreements)
An IRS installment agreement allows you to pay off your tax debt over an extended period rather than paying a lump sum up front. This option provides two installment payment plans. First, there’s a short-term payment plan to pay your back taxes over 3 months. Second, there’s a long-term installment agreement to settle your tax debt over a 72-month to 84-month period.
Offer in Compromise
If you cannot pay your tax debt due to ongoing financial hardship such as business failure, pandemic, or job loss, you can submit an “offer” to the IRS. This is known as an Offer in Compromise or OIC. An Offer in Compromise is a tax relief option that the IRS extends to taxpayers to resolve their full tax debt for less than the total amount owed.
“Currently Not Collectible” Status (CNC)
You can also consider requesting “Currently Not Collectible (CNC)” status from the IRS. While in CNC status, the IRS temporarily stops levies and other collection efforts until your current financial situation improves and you’re able to start making tax payments.
How Can Wiztax Help?
If you can afford to pay the full amount owed – do it as soon as possible to prevent unnecessary penalties and interest! If you can’t, call us today at (866) 568-4593 to learn more about how we can help, or start here to take our free online evaluation.
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