Now that you have assembled and organized all of your tax documents to meet the April tax filing deadline, you may discover the unsettling reality that you didn’t have enough withholding, so you owe Uncle Sam this year. You “always” get a refund, so you’re in a quandary about how to settle this unexpected liability.
The IRS wants to make paying any tax due easy, so there are numerous options. For help with other issues, check out our complete Tax Guide.
Ways to Pay Your Taxes
1. Direct Debit
Direct debit to your checking account is one of the most expedient ways to satisfy a tax debt. Most of the best online tax software facilitates this option. Even some of the free tax software options take care of this for you.
All you need is your bank’s routing number and your account number. These numbers are printed at the bottom of your checks: routing number first (9 digits), followed by your account number (number of digits vary). The account number is usually followed by the check number – you do not need that because you are not using an actual check. You are doing an EFW (Electronic Funds Withdrawal) transfer from your little pot of gold to the IRS cauldrons.
In most tax software, the default payment date is the due date of the return, which is always mid-April. However, to manage your cash flow, you can specify an earlier date when you want the payment to be siphoned from your account. Nevertheless, you are advised to pay on time in order to avoid the penalty and interest that the IRS assesses on late payments.
And remember, even if you got a tax-filing time extension, that is not an extension of time to pay. Do everything you can to pay on time as the late-payment penalty can accumulate to as much as 25% of the tax owed. Paying taxes is bad enough, but paying a penalty in addition to the tax should make our list of the four worst financial decisions.
2. IRS Direct Pay
If you are not e-filing, or you choose not to make your payment through the software, another secure option that is free is IRS Direct Pay. There are five steps to this process:
- Provide your tax information
- Verify your identity
- Enter your payment information
- Review and electronically sign the transaction
- Print or record your online confirmation number
In the first step, you choose the reason for the payment from a drop-down menu. For a current year return, this will be the “Tax Return or Notice” option. Then you designate the form with which the tax is associated. Ordinarily, this will be “1040, 1040A, 1040EZ.” Then pick the tax year to pay this year’s tax liability.
When you look at the menu for “Reason for Payment,” you will see that you can also use this option to make an estimated payment, or payment for an amended return, or payment on an installment plan, among others. When you hit the “Continue” button, a pop-up screen asks you to confirm your choices. Hit “Continue.”
The second step is to verify your identity. You can do this by inputting data to match data from any return from the prior five years. So, first select a previous tax year. Then select your filing status for that year, and type in your First and Last name, and Social Security Number. Next, select your month and day of birth and type in the year. The country of residence is next from a drop-down menu. “United States” is the default already selected. Next, type your address, just as it appeared on your return for the year you chose. If you used an abbreviation (like ST, AVE, CT, RD or BLVD), use the same abbreviation here. Finally, click the box to accept the “Privacy Act and Paperwork Reduction Act” terms (click the link if you want to read it).
If the system cannot verify your identity, it will advise double checking your entries or trying a different tax year. After some failed attempts, a message will appear directing you to another payment choice. Once your information matches, then you enter the amount to be paid and confirm it, choose the date of the transaction, enter your routing number and account number (twice), mark whether it is a checking or savings account, and hit the “Continue” button.
You must then agree to a “Disclosure Authorization,” before getting an opportunity to review the transaction. You can edit the information if you need to do so, then mark the box that you accept the “Debit Authorization Agreement,” enter your name and social security number, and click “Submit.” A confirmation number will be generated for you to write down or print. If you change your mind, you can also cancel the transaction before you submit it.
3. Pay by Debit or Credit Card
If you prefer to pay by debit or credit card rather than by electronic funds withdrawal from your checking account, you can opt to use a payment processor to handle the transaction. Though the method is safe and secure, they will charge a processing fee. The fees are listed below:
- PayUSAtax.com Debit card fee: $2.65; Credit card fee 1.98% ($2.69 minimum)
- Pay1040.com Debit card fee: $2.59; Credit card fee 1.87% ($2.59 minimum)
- OfficialPayments.com/fed Debit card fee: $2.25 ($3.95 for payments over $1,000); Credit card fee: 2.00% ($2.50 minimum)
The IRS has a couple of things you should understand about using this mode of payment:
- Fees may differ if you use the integrated IRS e-file and e-pay option
- Not all IRS forms are eligible for payment this way
- There are limits to how often you can make payments
- You usually cannot cancel payments
- You cannot make federal tax deposits
- You cannot get an immediate release of a federal lien
When you go to one of these sites, you will be asked to input TP and SP social security numbers, primary TP’s first and last names, street address, city, state and ZIP, daytime phone number, and e-mail address. Then you can input your cardholder name, card number, expiration month and year, and the CVV code from the back of the card.
When you click “Continue,” you have a chance to review, edit or cancel the transaction. If you want to continue, check the box to agree to the terms and conditions and press “Process Payment.” Once it is processed, you get a confirmation number.
For the “mobile society,” you can download the free app IRS2Go. With this app, you can check your refund status or make a payment in the ways described above, through IRS Direct Pay or a payment processor.
5. Electronic Federal Tax Payment System
There is yet another electronic method to pay your tax liability: EFTPS.gov. This is a sanctioned IRS service. To use this service, you must first enroll and obtain a PIN number. Then, when you log on to make a payment, there is three-factor verification: your SSN or EIN, your PIN, and an Internet Password.
When you first enroll at EFTPS.gov, the site will need to verify your identity, and then you will be sent a PIN number by US mail in 5-7 days. The system also has a voice response system, which allows you to follow prompts to make a payment, should the site be offline or unavailable. Payments can be scheduled up to 365 days in advance of the due date and can be changed up to two days before the payment is due. Payments must be scheduled by 8pm the day before the payment is due. This secure payment alternative is provided free by the U.S. Department of the Treasury.
6. Paying by Snail Mail
If you have a balance due when your return is complete, the software will generate a voucher (Form 1040-V) for the amount due. Along with the voucher, you may send a personal check, a money order, or a cashier’s check. Do not staple the check or money order to the voucher. Your payment should be made payable to “U.S. Treasury.”
Whichever payment method you use, be sure the following information is included on the check or money order: your name, address, daytime phone number, SSN and “2016 Form 1040” (for this tax year). That way, if the check and the voucher get separated, the check will still get credited to your account. Where you send your payment depends upon where you live. The IRS website will tell you the address for your payment.
What If I Can’t Pay All at Once?
There are several options for paying your tax liability if you are unable to pay it in a single payment. You can set up an installment plan online at irs.gov if you owe less than $50,000 in combined tax, penalties and interest, which covers the vast majority of taxpayers. In order to minimize penalties and interest, you are better off paying as much as you can when you file your return, and then setting up a payment plan to pay the balance in installments.
The information you will need includes the following:
- Valid e-mail address
- Address from your most recently processed tax return
- Date of birth
- Filing status
- Your social security number (if your status is MFJ, the system accepts the SSN of the person listed first on the return)
There are set-up fees associated with most of the installment plans:
- No set-up fee if you can pay in 120 days or less
- $31 if you do direct debit through the On-line Payment Agreement Application (OPA)
- $149 for agreements established through OPA, but without direct debit
- $107 for a direct-debit agreement not established through OPA
- $225 for agreements not through OPA and without direct debit
- $43 if your income is below a certain level ($31 if direct debit through OPA)
Once you have digested those options and have the information described above, you are ready to Apply as an Individual. The first time you use the system, you will have to verify your identity, a process the IRS indicates takes about 15 minutes. You will be asked first for your name from your most recently filed tax return and your e-mail address.
When submitted, the system will send you a code. You need to enter that code to proceed with the process. Once you have done that, you will need to enter information to confirm your identity: date of birth, social security number, filing status of your most recent return, and the address that matches your last return. Next, you need to create a user profile: create a username and password, choose a site phrase and a site image, and answer four “challenge questions” with different answers.
Once this information is entered and submitted, you are in the “Online Payment Agreement” area, where you enter the amount you owe, whether you will pay in 60 days, 120 days or monthly until paid. After you have made your selection, you confirm your agreement with the terms and then confirm payment. If you do not qualify for an online agreement, you can still submit an application for an installment agreement using Form 9465.
If you experience undue hardship and your tax obligation needed to be paid on time, you can apply for an extension of time to pay. This is done on Form 1127. Use the chart on page 3, to determine if this is the right option for you. If you intend to file the application, the forms and supporting documentation must be received on or before the due date of the return. Extensions of time to pay longer than six months are rarely granted, so if you are making the application, be sure you can pay within 180 days. The tax must be paid before the extension runs out. The IRS advises that you not wait to receive a bill from the IRS.
IRS debt is one of the most onerous kinds of debt to have, because you may be subject to more than one penalty, which adds to the amount you owe, crowned with interest charges. The best practice is to pay any IRS debt no later than the due date of the return. If you cannot afford to pay the full balance due, the best practice is to pay as much as you can, and set up an online installment plan to pay the balance in under 120 days (so you avoid the set-up fee).
One final word to the wise: use direct debit and make sure the money is in your account by the scheduled payment dates. You do not want to default on IRS debt – ever!
How do you plan on paying your taxes this year?