The IRS wants you to voluntarily file your tax return and pay your taxes. Recognizing that taxpayers may be struggling, particularly those who have experienced unemployment, the IRS has introduced a program to eliminate “failure to pay” penalties. Additionally, the IRS has changed some payment options to encourage taxpayers to meet their tax obligations.
All taxes on 2011 income are due on April 17, 2012. If not paid on time, the IRS levies a “failure to pay” penalty. This penalty is a half percent per month with a cap of 25 percent. Under the “Fresh Start” program, a taxpayer may receive a six month extension for payment of taxes due with no “failure to pay” penalties being assessed during the six months. Interest on the tax due will accrue over the extension period.
The taxpayer must meet the following criteria to be eligible for the extension and penalty relief.
• The 2011 tax liability must be less than $50,000, and
• The adjusted gross income must be less than $100.000 for single ($200,000 for married filing jointly), and
• The taxpayer or spouse must be a wage earner who was unemployed for 30 consecutive days between January 1, 2011 and April 17, 2012 or self-employed whose 2011 income decreased by 25% or more as compared to 2010 business income.
To receive the extension a new form must be filed (Form 1127-A) by April 17, 2012.
Getting the extension will give you some breathing room, but the taxes still have to be paid. Part of the IRS Fresh Start program is an expansion of the installment payment plan, Tax liabilities of up to $50,000 may be paid via installments, the payment period has been expanded to 72 months, and the financial information required to qualify for an installment payment plan has been streamlined based on tax liability level.
The IRS also has more flexibly with its “Offer in Compromise” program. An Offer in Compromise is an agreement between the IRS and the taxpayer that settles the tax liability for an amount less than owed. The IRS looks at the taxpayer’s financial situation to determine what amount of the liability can be paid.
Although you may be struggling due to unemployment or reduced self-employment income, you are still obligated to file a tax return and pay your taxes. If you can’t pay, do not skip filing. The penalties (failure to file and failure to pay) will make the burden worse. The IRS Fresh Start program may help with payment extension, penalty relief, and payment plans. Our office can determine your eligibility and develop a plan for you to meet your tax obligations.