Take advantage of tax relief programs when facing debt
Credit card debt and hefty loans can take a significant chunk out of a consumer’s take-home pay. But when individuals also find that they owe a large tax bill in April that they don’t have the money to pay, they may become anxious and worry about the consequences.
Owing money to Uncle Sam can seem more stressful to Americans than owing money to a lender, primarily because the interest rates and failure-to-pay penalties for tax bills is higher and the IRS can take more significant action. However, there are several benefits and relief programs adults can participate in to pay down their tax bill and continue to make payments on their credit cards and loans. The first thing adults should do is find out if they qualify for an installment payment program offered by the IRS.
The tax agency recently raised the balance threshold from $25,000 to $50,000, meaning individuals who owe less than that amount can elect to make monthly payments until their bill is paid in full. The IRS gives taxpayers some leeway in determining the size of their monthly payment, as long as the minimum monthly amount is above $25. In addition, the tax agency raised the installment term from 60 months to 72 months.
Adults who were unemployed for a consecutive 30-day period in 2011 or 2012 up to the April 17 filing deadline may also receive a six-month grace period on “failure-to-pay” fees if they owe a tax bill that they are having difficulty covering. The same grace period is also given to self-employed adults who experienced a 25 percent reduction in income in 2011. However, in order to qualify, adults filing as “married filing jointly” must not have an income that exceeds $200,000 and those filing as “single” or “head of household” cannot have earned more than $100,000.
Adults who choose to enroll in an installment plan should take a careful look at their budget prior to choosing a monthly amount to pay. By closely examining their credit card balances, loans, household expenses and financial goals, they can avoid taking on too much and struggling to pay their bills. When significant expenses, such as a tax bill, arises, it may also be a good idea for adults to visit a credit counselor when coming up with a feasible budget. Working with a professional can help adults spot holes in their budgets or re-arrange their priorities to better meet their needs.