Uncle Sam is usually a pretty unforgiving guy, but if you were unemployed in 2011 he might be willing to cut you some slack on your taxes this year. While Uncle Sam will of course want the full amount of taxes you owe at some point in time, you may be eligible to receive extra time to pay your 2011 tax bill without incurring additional failure-to-pay penalties (.5% to 1% of your unpaid taxes for each month up to 25 percent of your unpaid taxes). That could save you as much as $500 per month!
For those going through a difficult stretch of unemployment since the beginning of the year, bank accounts are probably looking pretty bare right now, which means this news might come as a huge relief as taxes are due in just over two weeks. The new rules also apply to self-employed individuals whose businesses are struggling due to the prolonged economic downturn, so you don't even need to be technically "unemployed" in order to take advantage of this program.
Failure-to-Pay Penalty Relief Program
Here's how it works. The IRS announced earlier this month that taxpayers who meet the following requirements can get an extra six months to pay their tax bills without having to pay any failure-to-pay penalties:
- You or your spouse were unemployed for 30 or more consecutive days during 2011 or up through April 17th in 2012.
- Or, you were self-employed and experienced a 25% or higher decrease in business income in 2011.
- Your AGI (Adjusted Gross Income) must be less than $100,000 if you file single or as head-of-household ($200,000 when married filing joint) and the taxes due can't exceed $50,000.
If you meet the requirements above and you can't pay your tax bill by April 17th, 2012, don't whip out your rewards credit card so you can pay up and get it over with while racking up a few miles. Not only will you have to pay a convenience fee of around 2.5% to pay with plastic, but you definitely don't want be carrying tax debt on your credit cards at ridiculously high interest rates. Instead, file IRS Form 1127A - Application for Extension of Time for Payment in addition to your tax returns by the tax deadline and save yourself from paying any failure-to-pay or failure-to-file penalties. Keep in mind that interest is still charged by the IRS at a rate of 3 percent on whatever tax you owe, so you'll want to get that balance paid off as soon as possible. And if you're interested in utilizing an installment program to make monthly payments, you can check out IRS.gov to find all the details and the paperwork you'll need in order to submit your application.
