The beginning of April means Tax Day is quickly approaching and many Americans will still have to file their returns in the coming weeks. So far, the IRS says it has received about 78.8 million tax returns, up from about 79.6 million at this time last year.
If you haven’t filed yet, you still have a couple of weeks until the April 15 deadline. By then, you will need to file your federal tax return and pay any amount you owe. If you are unable to pay the taxes you owe in full, your tax costs can increase quickly.
Taxpayers who owe balances have a few options for paying the IRS, including payment plans and forbearance programs. But if you owe back taxes, you may start seeing targeted ads from companies promising a fresh start by paying off your debt at a much lower cost than you owe.
However, these companies often make savings promises they can’t guarantee and offer services you can already get directly through the IRS.
Here’s what you need to know about IRS programs to help pay your debts and how to know if you qualify today.
Read more: What happens if I can’t pay my taxes? 5 ways to deal with your bill.
Fresh Start is not actually an IRS program that will erase your tax balance or eliminate your debts.
Fresh Start was an initiative launched in 2011 that simply expanded existing IRS payment options available to some eligible taxpayers.
The changes were designed to “help struggling taxpayers get a fresh start,” according to the IRS. Specifically, the Fresh Start program focused on two goals: helping Americans pay taxes owed and avoiding tax liens.
To help taxpayers pay taxes owed, the IRS expanded its offer in compromise (OIC) program to include taxpayers who earn up to $100,000 and owe less than $50,000 (double the $25,000 limit at the time). An offer in compromise allows eligible taxpayers to settle their debt to the IRS for less than what they owe. Acceptance of an offer is based on whether a taxpayer can pay in full based on their income and assets.
For help with federal tax liens, the Fresh Start program increased the dollar amount taxpayers must owe before the IRS files a lien on their assets and property, and allowed taxpayers to request that the lien be removed after paying. Taxpayers who owe less than $25,000 can also request a lien removal after entering into or converting to a direct debit installment agreement.
The changes made with Fresh Start in 2011 still apply to eligible taxpayers who owe balances to the IRS today. Here’s more information about how offers in compromise and lien release work today, and how to know if you qualify.
Today, you can submit an offer in compromise to the IRS online to try to settle your tax debt for less than the amount you owe. You don’t need to work with an outside company for the deal, and the IRS recommends that you be sure to check the qualifications of any professional you hire to help you with your offer.
You can apply for an OIC yourself. The IRS will consider your offer along with your overall finances, including your income, expenses, and assets. The IRS says it generally approves an offer in compromise “when the amount you offer represents the most we can expect to collect within a reasonable period of time.”
When you apply, you will need to submit a $205 application fee and your down payment (unless you qualify for low-income status), along with any required forms. Depending on your offer, the payment will be a lump sum equal to 20% of your offer amount or a monthly installment payment. You must also continue making the payments described in your offer while you wait for IRS acceptance.
If the IRS places a lien on your property, you can request a withdrawal after you pay what you owe, which will remove the Public Notice of Federal Tax Lien. Getting a lien removed can improve your credit score, even if you still owe a tax balance.
The withdrawal options introduced by the Fresh Start program still apply today.
First, you may be eligible for a withdrawal after paying your tax balance and being current on your payments and filings for at least three years.
The other option allows you to request a withdrawal after entering into a direct debit installment agreement with the IRS and meeting certain eligibility requirements, including the following:
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Be a qualified taxpayer
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Owe less than $25,000
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Have a direct debit installment agreement that will pay the full balance within 60 months
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Have already made three consecutive direct debit payments
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Stay on top of other payments and filings
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Not having breached any direct debit installment payment plan (current or past)
Direct Debit Installment Agreements are long-term payment plan options available to taxpayers who owe $50,000 or less (including taxes, penalties and interest payments) and have filed all of their returns. With this type of plan, you can make monthly payments on your balance for up to 72 months. Direct debit allows you to link your bank account so your monthly payment can be withdrawn automatically.
Today, the IRS requires direct debit for installment plans with balances between $25,000 and $50,000. When you apply for a long-term installment agreement with direct debit online, there is a $22 setup fee (unless you qualify for low-income status).
Offers in compromise and lien withdrawals are just two IRS plans available to eligible taxpayers who owe a tax balance. If you’re having trouble making your tax payments or aren’t sure you’ll be able to pay the full amount owed this year, here are a few more options to consider:
A short-term payment plan through the IRS gives you up to an additional 180 days to pay your balance in full. You may qualify with a balance of $100,000 or less in combined taxes, penalties and interest. There’s no setup fee, but you’ll still accrue fees and interest as you pay off your plan balance.
You can also request a long-term installment agreement (like the one described above). This can be helpful in paying your balance, even if the IRS has not placed a lien on your property.
You can request by phone that the IRS place your account on “currently non-collectible” (CNC) status if you are experiencing financial difficulties. You will still owe your balance in full and continue to accrue penalties and interest, but the IRS will stop collections.
Over time, the agency will review your financial situation to determine if you can resume payments.
Instead of a plan with the IRS, you can use a personal loan or 0% APR credit card to pay the taxes you owe and then pay off the balance on the loan or card.
Typically, you’ll need a good credit score to qualify for either. But IRS interest rates may still be lower than the personal loan rates you qualify for. Even with a credit card that has a 0% APR, you’ll run the risk of accruing interest at the card’s consistently high interest rate if you don’t pay your balance in full by the end of the introductory period. Additionally, you will have to pay fees to pay your tax balance with a credit card.
Check out pre-qualification offers and make sure you have a payment plan before deciding if a loan or credit card might be a more affordable option.