IRS offers grace period to distressed taxpayers

The IRS announced Wednesday that it would be giving some badly needed relief for taxpayers who have were unemployed or suffered significant income reductions during 2011. The tax collection agency is giving them a grace period to pay without facing penalties.

‘Failure-to-pay’ penalties waived

Typically, the IRS levies 5 percent “failure-to-pay” penalties if taxpayers do not pay before the April deadline. Those fees increase the longer the taxpayer holds off payment, with a 25 percent cap.

However, because of the hardships of the economic downturn, the agency has decided to give some taxpayers a six-month grace period before they are charged. That will give them until mid-October to pay up.

IRS Commissioner Doug Shulman said:

“We have an obligation to work with taxpayers who are struggling to make ends meet. Our goal is to help people meet their obligations and get back on their feet financially.”

A continued ‘Fresh Start’

The agency said the new efforts are an expansion of its “Fresh Start” program, initiated in 2008. That effort was implemented to help American taxpayers who had been distressed financially because of the Great Recession.

Taxes still accrue

However, those who qualify and delay payment until next fall won’t get off entirely free. Their tax bill will still accrue interest over that period.

[Short term loans can hold off that tax burden]

How to qualify

To qualify for the payment delay, taxpayers must have been unemployed for at least 30 consecutive days between January 1, 2011 and the filing date of April 17, 2012. Self-employed individuals whose businesses lost 25 percent or more income during the same period can also claim the grace period.

Income cap for eligibility

Married taxpayers filing jointly who make $200,000 or more annually are ineligible for the payment delay. Single filers and heads of households cannot apply for the grace period if they make $100,000 or more a year.

To apply for the penalty-free grace period, taxpayers must file a Form 1127A. The form can be found at IRS.gov.

Installment payments

The IRS is offering further relief to distressed taxpayers in the form of installment plans. Some taxpayers with hardships are being allowed to spread out their tax obligation into more manageable periodic payments. The agency is allowing installment payments from some taxpayers owing up to $50,000, without filing an additional financial statement. However, those who owe more than that must fill out a Collection Information Statement before being allowed to pay in installments.

The maximum period for installment payments to be paid off is six years, up from the previous limit of five.

Sources

USA Today
Global Post
CNN