One of the most discouraging financial situations to be in has to do with being unable to pay your tax obligation. Thousands of Americans feel this sensation every year. However, the IRS has a program designed to ease some of the burdens.
Since a great deal of the burden associated with an inability to pay taxes has to do with failure to pay penalties, the IRS offers the Fresh Start Penalty Relief program to those who qualify.
What is the Fresh Start Program?
The Fresh Start program was announced in 2011 as a way to help taxpayers with slight changes in IRS policies regarding tax liens, installment agreements, Offers in Compromise, and more. Recently, an expansion of this program allows certain taxpayers the ability to avoid failure to pay penalties if they meet certain requirements. The program is meant to help those who are unemployed, as well as the self-employed who have lost a significant amount of business. The program offers you the chance to extend the payment of your 2011 taxes until October 15, 2012, without incurring failure to pay penalties (you are still responsible for interest payments, though).
As part of the Fresh Start program, you can take advantage of the payment installment plan offered by the IRS. This payment plan can make it easier for you to meet your tax obligation since you can pay in smaller increments over time.
Eligibility for the Fresh Start Program Penalty Relief
In order to qualify for the new failure to pay penalty relief with the Fresh Start program, you need to have been unemployed for at least consecutive days during 2011, or during 2012, up until this year’s April 17 filing deadline. The IRS will also consider the self-employed who saw a drop of at least 25% in business income during 2011. You must also meet income limits. You can’t tax advantage of the penalty relief in the program if your income is more than $200,000 married filing jointly, or $100,000 filing as single or head of household.
You need to file Form 1127-A in order to apply for the program. This form needs to mailed, rather than filed electronically. In order to avoid the failure to pay penalty, you need to pay your entire tax obligation, plus interest, paid by October 15, 2012. After October 15, you will begin paying the penalty of ½ of 1% of your unpaid taxes each month (the penalty cannot exceed 25% of your total taxes owed).
IRS Installment Agreement
The IRS also offers an installment plan for those who have difficulty paying their obligations. You can apply for the installment plan online. Prior to the Fresh Start update, you could only take advantage of the streamlined IRS Payment plan if you owed $25,000 or less. Now, though, the IRS has raised the limit to $50,000. You don’t even have to provide a financial statement if you owe $25,000 or less. If you owe between $25,001 and $50,000, you do need to provide basic financial information if you agree to direct debit from your checking account.
These changes to the Fresh Start program, as well as the expansion of the streamlined installment plan, provides a way for those who can’t afford to make a single lump-sum payment of their taxes. However, the failure to pay penalty is the only item waived, and only for six months, so you will still need to work out a way to make payments.