As we head toward the April tax filing deadline, you may have already finished your taxes, or at least begun to compile the paperwork to do so. And if you expect to owe money this year, it’s helpful to understand your options for paying. There are a few different ways to get your payment to the IRS on time – each with its own set of pros and cons depending on your situation.
3 Ways to Pay Your Taxes
1. Pay by Credit or Debit Card
When you make a payment by credit or debit card, you have to use an IRS-approved payment processor. A small fee is charged, but if you aren’t able to pay your entire tax bill right now (and don’t want to set up an IRS tax payment plan), paying with plastic is one way to pay off your tax debt over time. You’re generally charged a flat fee in the range of $2 to $3 to use a debit card, and a percentage of your payment between 1.87% and 2.25% to use a credit card. Below are the authorized companies from which the IRS accepts payments:
- Pay1040.com: $2.59 flat fee for debit cards, 1.87% fee ($2.59 minimum) for credit cards.
- PayUSAtax.com: $2.69 flat fee for debit cards, 1.99% fee ($2.69 minimum) for credit cards.
- OfficialPayments.com/fed: $2.50 flat fee for debit cards ($3.95 flat fee for payments over $1,000), 2.25% fee ($2.50 minimum) for credit cards.
In order to pay your taxes using a credit or debit card, you need to provide your Social Security number or EIN, your mailing address, a phone number, and an email address if you pay online. Not every IRS tax form is eligible for payment by debit or credit card, and limits are imposed on how often you can make payments. Also, note that fees may differ when you choose the integrated IRS e-file and e-pay option.
2. Transfer From Your Bank Account
If you use any of the major tax preparation software options (TurboTax, H&R Block, or TaxACT), and many smaller ones, the service can send the government instructions for directly withdrawing money from your bank account. On an individual basis, there are also several ways you can transfer money directly from your checking or savings account to the IRS:
- IRS E-File (Electronic Funds Withdrawal). You can submit an Electronic Funds Withdrawal payment when you file via IRS Free File, or when you use a paid tax preparer or tax prep software. While the IRS doesn’t charge a fee to use EFW, check with your financial institution to make sure there’s no charge for its end of the transfer. Making an EFW eliminates the need to submit a voucher (if used for estimated payments), and payments can be scheduled in advance, up to 365 days from the date your electronic return is filed. To view available EFW tax forms visit Electronic Funds Withdrawal for Individuals or Electronic Funds Withdrawal for Businesses.
- Electronic Federal Tax Payment System (EFTPS). Most individuals and businesses who use the Electronic Federal Taxpayer Payment System (EFTPS) are paying estimated tax payments quarterly online, but it’s free for everyone to use. Note that while the application to set up an account with the Electronic Federal Taxpayer Payment System (EFTPS) only takes about 10 minutes, it can take up to 15 business days for your account to be confirmed. Once EFTPS processes your application, confirmation materials are mailed to the name and address you entered on your enrollment form. However, your EFTPS PIN is mailed to your official IRS address of record in order to prevent fraud. The instructions you receive via mail include details on how obtain your Internet password.
- IRS Direct Pay. This is also a secure service that you can use to pay your individual tax bill or estimated payment directly from your savings or checking account at no cost. Once your payment is submitted, you receive instant confirmation. IRS Direct Pay differs from EFTPS in that it doesn’t require you to complete a registration process.
- Same Day Wire. Making a same-day wire payment from your financial institution is as easy as filling out the Same-Day Taxpayer Worksheet and giving it to your financial institution. Note that if you’re paying for more than one tax form or tax period, you must complete a separate worksheet for each payment. If your bank has any questions, it can refer to the Financial Institution Handbook for details on formatting and processing. Check with your bank on its fees to send same day wire transfers.
3. Pay With a Check or Money Order
You have two options for paying your taxes with a check: You can either enclose the check with your 1040 tax form when you mail it in (but don’t staple the check to your return) or you can send the IRS a check or money order directly. Be sure to make your check payable to the U.S. Treasury and include your name, address, daytime phone number, Social Security number (the first SSN shown if filing a joint return) or EIN, and relevant tax period and tax form or notice number on the check itself. Consult the IRS website to find out where you should mail it. Note that you can also pay estimated taxes by check using 1040-ES vouchers.
What If I Can’t Pay?
If you aren’t able to pay your tax balance, you should get in contact with the IRS through your local taxpayer office or your local taxpayer advocate. It can help you work out an installment agreement or payment extension (this differs from a filing extension) to help ensure you don’t get overwhelmed with fees and penalties. Avoiding payments is tax evasion fraud, so always be proactive and honest with the IRS, even if you can’t think of a solution to the problem on your own. If you’re unsure whether to ask for an installment agreement or an extension, here’s a breakdown:
- Installment Agreement. With an installment agreement, you can pay all or part of the tax you owe in monthly installments. However, if your request to pay in installments is granted, interest is charged on the balance you owe, and you may still be charged a late payment penalty. To limit interest and potential charges, try to pay as much of your owed taxes as possible when you file.
- Extension. An extension of time to pay may be granted when paying the taxes due would cause you undue hardship. You can request an extension by filing Form 1127 by the due date of your return. Extensions aren’t usually granted for more than six months, and any balance paid after the ending date of your extension may be charged interest, so if you can’t pay now, make sure you can pay within the next 180 days.
If you end up owing the government a balance come April 18, 2016, be sure to plan ahead next year. If you’re self-employed, commit to putting aside a certain percentage of every paycheck into a dedicated bank account (and making quarterly estimated tax payments). If you’re an employee, be sure the details on your Form W-4 are optimized and speak to your HR professional for guidance.
Did you end up having to pay taxes this year?