This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
You may not have the money to pay the IRS what you owe. But read on to see why a partial payment is better than none. [[{“value”:”
Image source: Getty Images
Many people who file a tax return end up with a refund. And this year, the average tax refund as of this writing is $3,081.
But not everyone gets a refund. If your income increased a lot last year but you didn’t increase your tax withholding, then you may end up owing the IRS money this April.
Similarly, maybe your wages didn’t rise last year, but you earned more money overall between dividends in your brokerage account and interest in your savings account. If either of those income sources was substantial, it could be enough to create a balance due.
Now, it’s never fun to have to dip into your savings to send money to the IRS. But what if you don’t have enough savings to cover the sum you owe?
In that case, you’re better off paying the IRS something rather than nothing at all. Here’s why.
It’s all about minimizing your tax penalties
You should know that the IRS imposes a penalty for filing taxes late when you owe money. So it’s a good thing to get your return in by April 15.
Let’s say you file your taxes by April 15 but can’t cover the amount you owe in full. From there, you’ll face a late payment penalty equal to 0.5% of your unpaid tax bill per month or partial month your money is late, up to 25%. You’ll also be charged interest on your unpaid tax debt. If you’re able to make a partial payment on your tax bill, it’s in your best financial interest to do so.
Let’s say you owe the IRS $2,000 and can’t pay it. This means that for each month or partial month you’re late sending in that money, you’ll face a penalty of $10.
But let’s say you have $1,000 in savings you can part with. If you send that $1,000 in by April 15, then going forward, you’ll only be looking at a late payment penalty of $5 per month or partial month you’re late.
Get onto a payment plan if you can’t pay in full
Sending the IRS a partial payment by the April 15 deadline is a show of good faith, if you will. But don’t stop there. Also contact the agency to get on a payment plan to tackle the remainder of your tax bill.
If you don’t reach out to get onto a payment plan, the IRS might think you’re blowing off your remaining debt. And if so, the agency could eventually seek to garnish your wages to get repaid.
However, once you get onto a payment plan, you’ll be considered current on your tax debt as long as you’re sticking to the terms of that payment plan. So if you owe the IRS $1,000 but you’ve made your first $50 payment under your payment plan on time, your wages should be safe.
Owing the IRS money is a bummer. But if you can’t pay your tax bill in full by April 15, pay what you can to minimize the penalties you’re hit with.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
“}]] Read More
