How to Pay Taxes on Time and Avoid Penalties: IRS Provides Valuable Recommendation
As the deadline for filing and paying income taxes for the 2023 tax year looms closer, the Internal Revenue Service (IRS) has issued a tax guide outlining various electronic payment options that taxpayers can utilize to ensure timely payment of their tax dues. Late payments can attract interest rates at 8 percent per annum, compounded daily, making it crucial for taxpayers to adhere to the deadlines to avoid penalties and interest charges.
For taxpayers who find it difficult to file their returns on time, the IRS provides the option to request a six-month extension before April 15. This extension grants taxpayers until October 15 to file their returns without incurring penalties and interest. However, it is important for taxpayers to note that they should still pay what they owe by the April 15 deadline to minimize total penalties and interest.
The IRS recommends several electronic payment methods that can be used to pay off tax dues. One option is an IRS Online Account, which not only allows taxpayers to pay their taxes but also provides access to important information such as adjusted gross income, payment history, payment plan details, and digital copies of select notices from the IRS. Taxpayers can also use their Online Account to make same-day payments for outstanding tax balances, pay quarterly estimated taxes, or request an extension to file their returns for the current year.
Another electronic payment option is Direct Pay, a free service that enables taxpayers to pay their dues directly from their bank accounts without the need to register for an online account. Payments can be scheduled up to 365 days in advance, and taxpayers receive immediate confirmation once the payment is completed.
The IRS2Go mobile app is another convenient tool provided by the IRS. Through this app, taxpayers can make tax payments, check their refund status, and find free tax preparation assistance. The app is available in both English and Spanish, ensuring accessibility for a wide range of users.
Taxpayers using tax preparation software or employing a tax professional can opt for the Electronic Fund Withdrawal (EFW) option to pay their taxes electronically. This option streamlines the payment process and eliminates the need for manual transactions.
The Electronic Federal Tax Payment System, offered by the U.S. Department of Treasury, is a free tax payment system that taxpayers can utilize to pay their federal taxes. However, it is important to note that new enrollments into the system can take up to five business days to process.
While electronic payment options provide convenience and efficiency, taxpayers also have the option to pay their taxes via check/money order or through cash. When paying by check or money order, it is essential to make them payable to the “United States Treasury.” Cash payments can be made at various IRS retail partner locations across the United States, with a limit of $500 per payment. However, there is no daily limit on the number of payments that can be made, and taxpayers can find specific information regarding monthly, annual, and other limits on the IRS webpage.
It is important to note that the April 15 deadline does not apply to certain victims of natural disasters, who have until October 15 to pay their 2023 tax dues.
Failure to pay taxes on time can result in interest and penalties. The interest charged on unpaid taxes is calculated from the due date until the date of payment, compounded on a daily basis. The interest rate is determined quarterly and is currently set at the federal short-term rate plus three percent.
Penalties are also imposed for failure to pay or file taxes on time. The failure-to-pay penalty is 0.5 percent per month for the unpaid portion of the tax, with a maximum penalty of 25 percent. For failure-to-file, a penalty of 5 percent per month is charged, up to a maximum of 25 percent. If the filing is more than 60 days late, there is a minimum penalty of $485 or 100 percent of the tax owed, whichever is less.
Taxpayers who are unable to pay their dues in full have the option to pay a portion and then choose from various payment options to settle the remaining balance, including obtaining a loan. The IRS advises taxpayers to act promptly and not wait to respond to notices, as tax bills accumulate more interest and fees the longer they remain unpaid. Most taxpayers qualify for a payment plan, with long-term payment plans available for individuals owing less than $50,000 in tax, penalties, and interest. Payments can be made in up to 72 monthly installments. For tax dues exceeding $25,000, direct debit is necessary. Additionally, a short-term payment plan is available for taxpayers with payments under $100,000, granting them an additional 180 days to pay the balance in full.
By utilizing the electronic payment options provided by the IRS or exploring alternative payment plans, taxpayers can ensure timely payment of their taxes and avoid unnecessary penalties and interest charges. It is crucial for taxpayers to be proactive and take advantage of the resources and guidance provided by the IRS to fulfill their tax obligations efficiently and effectively.
