Filing income taxes and paying income taxes are two different actions in the view of the U.S. Internal Revenue Service. If you cannot file or pay taxes on time, then there are options available that may allow you to temporarily postpone the filing of tax documents in addition to delaying some or all of tax payment due. In some cases, payment due can be reduced, however the IRS evaluates tax filers' reasons for late payments before approving a specific payment reduction or deferral.
For individuals or joint tax filers seeking to extend the filing of their Form 1040 and related documents, an automatic six month tax filing extension can be applied for via Form 4868. This document must be completed and filed with the IRS before the tax filing deadline to avoid penalty. If the filing extension is granted, the IRS still requires a tax payment. To delay filing and postpone payment of taxes, additional documentation is required.
What the IRS is authorized to do when tax payment is delayed is governed by Section 6651 of Title 26 of the U.S. Code. Moreover, under this legal statute, late payment of tax without penalty is allowable in some circumstances. The tax law specifically states the following:
“...unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount shown as tax on such return 0.5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 0.5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent in the aggregate...”
To specify further, if the tax payment will be late due to financial hardship, then penalty other than interest on tax due can be avoided and payment extension can be granted if IRS Form 1127 is sent to the IRS and approved. Reasons for hardship vary, but may include factors related to natural disaster and inability to pay without negative financial consequence to net worth. In other words, the effect of paying taxes should itself have a substantial negative financial impact to qualify for the hardship extension.
If the payment deadline cannot be extended due to financial hardship, other tax payment options still exist. However, these alternatives do involve a penalty either in the form of fees and/or interest. An accepted installment plan application using Form 9465 extends payment of taxes over several months, but the fee ranges from $43 to $120 depending on income and payment method. Moreover, automatic direct debit payments qualify for a lower fee and those with incomes below the federally mandated threshold may be eligible for the lowest fee if Form 18344 is completed correctly.
Offer in compromise
For tax filers going through bankruptcy or who have a legitimate reason that prevents them from paying their taxes, an offer in compromise may be sent the IRS. This document is essentially a negotiation to pay a lower amount of tax based on inability to pay. The offer in compromise is applied for using Form 433-A. Before completing this application, taking the pre-qualification test assists in determining eligibility for the program.
Ideally tax documents and payments are filed and paid on time to avoid complication. However, there are circumstances where this is not possible. The IRS understands this and is legally obliged to assist by offering tax filing and payment alternatives. Additionally, if tax filers have unanswered tax questions, they can call the IRS directly at 1-800-829-1040. Although alternate tax filing options help postpone tax filing, they do not necessarily eliminate the tax payment requirement. In many cases, tax filing and payment deferrals are granted, but the extra interest charges may make paying late less practical.