If you owe the Internal Revenue Service (IRS) money, you are not alone. An estimated 8.26 million federal income tax accounts went into delinquent collections in 2017. A common reason for unexpected tax bills: 1099-MISC statements from the IRS.
What is a 1099-MISC statement? The IRS uses these statements for those who received non-employee compensation. These forms are often used by the IRS to report payments made to independent contractors. Those who drive for Uber or Lyft could receive this form from the IRS.
What if I cannot pay my tax bill? Whether the bill is the result of a surprising 1099-MISC or other issue, those who cannot pay their tax obligation have options. Here are three examples:
- Short-term payment plan. pay over the course of a few months, you can contact the IRS to set up a short-term payment plan. There is not a fee for this payment plan, but penalties and fines can apply.
- Long-term payment plan. If you need a longer period of time to pay off the bill an installment payment agreement may be an option. This option results in a repayment plan that generally spans over five years or less.
- Unable to pay. In some cases, taxpayers can have the debt classified as uncollectible. This is not an easy task and requires specific evidence to satisfy the IRS. The IRS has stated that it would not accept an offer if it is believed the “liability can be paid in full as a lump sum or through a payment agreement.” Although difficult to establish, those with special circumstances can find success with this option. However, it is wise to seek the counsel of an attorney if considering this option.
Whatever option you choose, it is wise to take action. The IRS can charge up to 5 percent every month a taxpayer fails to pay his or her tax bill. This can result in a penalty of up to 25 percent of the unpaid tax bill. You can mitigate this risk by taking action. Talk to an attorney to discuss your options.