Once upon a time, paying your tax bill meant writing a check and sending it through the mail — or going to your local IRS office in-person to hand-deliver the payment. However, in keeping with trends and taxpayer preferences, the IRS has made significant updates to its payment processes to make it easier and more convenient to pay your federal income tax bill.
The IRS expects taxpayers to send payment when they file their taxes before the April 15 deadline. The online payment option is designed to make payments easier, so you can avoid racking up penalties and interest charges on your outstanding balance.
Not paying your taxes on time will result in a much larger bill, as the IRS charges a penalty of 0.5% to 1% on the overall amount owed. Starting on April 16, this penalty accrues every month or portion of a month that the balance goes unpaid. Additionally, you’ll pay interest equal to the federal short term rate, plus 3%. Interest on unpaid taxes (currently 5%) compounds daily, meaning your unpaid tax bill will quickly grow the longer it’s left unpaid.
Although there are some circumstances in which the penalties can be waived, you’ll still be charged interest on your unpaid balance until it’s paid in full. Therefore, it’s in your best interests to budget for your tax bill, and know how to pay the bill.
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Can You Pay the IRS Online?
Chances are you pay most of your bills online, and the good news is you can pay your tax bill online as well. In fact, the IRS prefers taxpayers to use the online payment system, as it’s simple and easy to manage. You have several options for paying online, each of which comes with its own benefits and drawbacks.
IRS Direct Pay
IRS Direct Pay is the agency’s preferred method for taxpayers to remit payments, and it’s simple and free to use. Direct Pay is a secure service that allows taxpayers to pay their tax bills directly from their bank accounts via an Automated Clearing House (ACH) transfer. To use this service, you simply need to visit the Direct Pay website and set up an account; the service will verify your identity and confirm your bank routing and account numbers, and then give you the option to schedule payments.
The Direct Pay service can be used for most tax payments, including tax returns, installment payments, estimated tax payments, penalties, and amended return payments. It’s free, and you can schedule payments up to 30 days in advance. Once your payment is processed, you’ll receive an email confirmation, and you can review all of the payments you’ve made in your account.
Using Direct Pay doesn’t change the due dates for payments (i.e., your tax returns and payments are still due on April 15). You also cannot make more than two payments in any 24-hour period. Therefore, if you were planning to split your tax payment between multiple accounts, you need to plan ahead to spread them out. You can’t use Direct Pay for business tax payments, or if you have a foreign bank account. Finally, Direct Pay is only for payments less than $10 million; if you need to pay more than that, you’ll have to use a different option.
Pay the IRS With a Credit or Debit Card
Direct Pay is only for payments from a bank account. If you prefer to pay via credit or debit card, you can, but there are additional fees associated with this method.
You can pay by card via the internet or phone. You’ll need to choose a payment processor (currently, the IRS accepts official payments on its website, and also works with WorldPay US, Inc. and Link2gov Corporation to process debit and credit payments) and set up an account with that particular processor.
You’ll pay a fee for the privilege of using your card, which varies by processor. The IRS charges a flat debit rate of $2.00 for payments under $1,000 and $3.95 for payments over $1,000, or a 1.99% fee for credit card payments; the other processors charge slightly lower fees.
In addition to knowing you’ll pay more, there are a few other things to know about debit and credit card tax payments:
- You typically cannot cancel or revise card payments.
- You may need to coordinate with your bank or card issuer for payments over $100,000.
- There are limits to how many card payments you can make based on the type of bill you’re paying.
- Businesses can deduct the fees as a business expense.
- You may pay different fees if you use an integrated e-file/e-pay option.
- If you are paying your bill to eliminate a tax lien, using a credit or debit card will not automatically release the lien.
Electronic Federal Tax Payment System (EFTPS)
The Electronic Federal Tax Payment System (EFTPS) is similar to Direct Pay, except that it adds a few additional layers of security, and can take a bit longer to set up an account. EFTPS is a good option for businesses, especially those that need to make multiple payments in a single year, and it’s good for paying large tax bills.
To set up an EFTPS account, go the the EFTPS website, or call the IRS to request an enrollment form. You’ll need to submit your Social Security number or employer identification number (EIN) to setup the account. Once your information is processed, the IRS will send a unique PIN, which you’ll need to log in to the site, as well as a password you set.
The EFTPS system is convenient because it is free, and it allows taxpayers to schedule payments up to 365 days in advance. It’s available for all federal tax payments, including individual income, employment, and estimated taxes. You can schedule same day payments, and view your payment history online. However, it does take longer to set up (getting your PIN usually takes at least five days) and your bank may charge you a fee for initiating payments on your behalf.
IRS Payment Mailing Address
Although the IRS prefers taxpayers to use the online payment systems, you still have the option of paying your tax bill using a check, money order, or cashier’s check from your bank. The tax form you use to file your return will have specific instructions and the correct address for mailing the return, or you can check the IRS website or Google the instructions for your state to find the right address. You can also make your tax payment in person at your local IRS office, but it’s best to make an appointment to avoid waiting.
Mailing your payment or paying in person has a few advantages. If you do not have internet access or a bank account, getting a money order or cashier’s check at the bank or post office is a viable alternative. In addition, checks are traceable, so if there is an issue with your payment, you have a paper trail to determine what happened. On the downside, mailed payments take longer to process than online payments. That said, as long as your payment is postmarked by April 15, you won’t be subject to penalties.
How to Set Up a Payment Plan With the IRS
So what happens if you can’t pay your entire tax bill at once? Do not put off filing your taxes. Even if you can’t pay the full amount, be sure to file before the April 15 deadline to avoid failure-to-file penalties.
To help you get the bill paid, the IRS offers the option to set up a payment plan. You can choose from short- or long-term plans depending on how much you owe. Keep in mind that penalties and interest will continue to accrue even if you are on a payment plan, so aim to get the balance paid as quickly as possible.
You can set up these plans online if you meet certain requirements, most importantly that you have filed your taxes. If you owe less than $50,000 total, you can request a long-term installment plan online. For a short-term plan in which you’ll pay your balance within 120 days, you must owe less than $100,000.
The IRS does charge setup fees for long-term plans, which depend on the amount you owe and how you will be paying; if you opt for Direct Pay, you’ll pay less in setup fees. For short-term plans, there is no setup fee. Once the IRS agrees to the installment plan, you must make all of your payments on time, or risk having your plan cancelled and a demand for immediate payment in full.
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