Unpaid Tax Penalties

• Before deciding on the best course of action for dealing with your unpaid tax, you should be aware of the charges accruing each month that you owe the IRS. Beginning the first day your balance is past-due, the IRS charges a late-payment penalty of 0.5 percent each month. This penalty can accrue for a little over four years if you don't pay the balance before that time. In addition, interest charges will increase the amount you owe and accrue concurrently with the penalty.
  
  

Requesting Installment Agreement

• The IRS is not looking to bankrupt you just because you owe some tax. As long as you cooperate with the agency rather than ignore it, it's likely the IRS will work with you. One option you have is to request an installment agreement to pay off your tax debt. If the IRS approves it, you can make monthly payments to the IRS. The best part is that the IRS will cut your interest charges in half so long as you continue to make timely tax payments during the repayment period. To request an installment agreement, fill out Form 9465 and send it to the IRS.
  
  

Low-Interest Credit Cards

• Using a credit card to pay off your tax debt can save you money and may allow you to get up to date with the IRS. Since the IRS charges penalties and interest each month, using a credit card that offers an interest rate lower than the combined penalty and interest rates you would pay to the IRS can be a smart option. Since most credit cards allow you to make monthly minimum payments, this also eliminates the need to file a Form 9465.
  
  

Increase Withholding

• If you are unable to commit to monthly payments and don't have a credit card to use, as a last resort, you can increase the amount your employer withholds from your paychecks. Although the IRS will certainly not apply the extra withholding to your prior tax balance, doing this will at least insure that your tax payments for the current year exceed your tax liability. When you prepare a tax return at the end of the year, you can use any resulting refund to pay off your past-due taxes. You will still be subject to interest and penalties all year, but increasing your withholding is still a better option than doing nothing at all. To increase your withholding, simply reduce the number of allowances you currently claim and submit a new W-4 to your employer.