Few scenarios can incite more stress and fear in an individual than lacking the money to pay their federal tax bill in full. In addition to hefty penalties and interest charges imposed for settling a balance, the Internal Revenue Service can - in more serious cases - garnish wages, withhold refunds to cover previous balances and place a lien on a propertyholder's assets. Individuals who have received a bill they can't pay should keep in mind, however, that these scenarios typically only occur if they fail to work with the IRS. The agency offers a number of payment options and is often willing to assist people who reach out to them for help. One of these programs that has grown in popularity is the Fresh Start initiative.
The program is designed to help taxpayers settle their balances and avoid tax liens. For instance, the IRS recently increased the amount that individuals can owe before it will file a Notice of Federal Tax Lien to $10,000. This means that those who typically owe less than this amount will not be hit with a lien on their property (although in special circumstances, the agency may still impose a lien). In addition, when people make the last payment on their tax bill and their balance reads zero, they may petition the IRS to withdraw the lien. This can help them improve their credit standing over time.
The IRS also offers a flexible installment payment option under the Fresh Start program, which may be available to taxpayers who owe a balance of less than $50,000. Individuals who fall under this threshold may be permitted to make monthly direct debit payments for up to 72 months, although interest will accrue during the payment period. For this reason, it can be beneficial for individuals to determine a reasonable amount that they can afford to pay each month, and one that allows them to settle their bill as quickly as possible.
Options for those with large balances
In instances when a person's tax debt is excessive - $50,000 or more - they may qualify for an offer in compromise. If approved for this agreement with the IRS, they can settle their bill for less than the full amount owed. Although the agency may closely examine an applicant's ability to pay, new guidelines allow it to take a more flexible approach toward analyzing a person's finances. Individuals might also want to speak with a tax preparer before submitting an application to measure their eligibility.
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