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What Should I Know if I File aTax Return with a Balance Due?

22.7 million Americans filed a tax return with a balance due in 2009.

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While it may be tempting to pretend that it will be better to not file a tax return because you are going to have a balance due, that’s not reality.

The IRS can understand not having the money to pay your entire balance due – what they won’t understand is your failure to file a return, even though you have a legal obligation to do so.

If you can’t bring yourself to file the return without having the money to pay the balance due, at least do yourself a favor and file an extension.

Filing an extension will prevent the IRS from adding a late filing penalty to your account, which is 5% of the tax due for each month (or part of a month) that the return is late.

I know I’m going to owe this year. Should I just not file a return?

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Unfortunately, no. When you file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, you get just that – an extension of time to file.

An extension to file does not give you any extension of time to pay the amount you owe.

If you file an extension knowing that you are going to owe, you should send in payment with the extension.

Even if you aren’t 100% positive about the amount that you will owe, it is better to send in a reasonable estimate than to send nothing at all.

Will an extension give me extra time to pay?

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Yes. If you file a return and do not pay the tax due, the IRS will add a failure to pay penalty to your account.

The failure to pay penalty is calculated at 0.5% of the tax due per month and will be added until you either pay the balance due or reach the maximum penalty of 25%.

The failure to pay penalty will also be added to your account if you file an extension without sufficient payment and later file a return with a balance due. The penalty will be retroactively calculated back to April.

Will the IRS penalize me for not making a payment with my return

or extension?

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The most important thing to do is be proactive.

You may be able to get a hold placed on your account, which gives you time to come up with the funds to pay the balance due. The maximum amount of time the IRS will allow is 120 days.

If you want monthly payments, you can attach Form 9465 to your return, which is a request for a monthly payment plan. You can also call the IRS directly.

However you choose to tackle the balance, remember that you have to contact the IRS. They won’t automatically grant you a hold or set up a payment plan unless you request it from them.

What should I do if I file my return and can’t pay the balance due?

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While the IRS is not going to completely remove your balance, if this is the first time you’ve run into some trouble with the IRS, you may get certain penalties removed.

The IRS may be willing to remove (or “abate”) a failure to pay penalty if this is the first time you have had a balance due.

Like the hold and monthly payment options discussed on the previous slide, you have to proactively contact the IRS and ask for this first time penalty abatement.

What if this is the first time I’ve owed?

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Need more?

Ask additional questions in the easyIRS User Forum.

Go to the Tax Debt Home Page for more related content.

View slide shows on other tax topics.