How Can I Pay My Tax Bill? by Adam Cohen, CPA
Posted on March 15, 2019 by Adam Cohen
For many taxpayers, the joy they felt while taking home larger paychecks in 2018 due to the Tax Cuts and Jobs Act has turned to frustration as they file their federal income tax returns. Many are finding that they have a surprise tax bill or their refund from the government is significantly less than what they received last year. Why the disconnect?
It is common for taxpayers to assume that a tax cut automatically translates to a higher tax refund or a lower tax bill. The reality is that the size of refund or tax bill is based on how much you prepay to the government throughout the year through payroll tax withholding or estimated quarterly tax payments. If you withheld too much in 2018, you essentially gave the government an interest free loan that it will pay back to you as a refund when you file your returns. If you underpaid your tax liabilities, you may very well have a tax bill come April 15.
Many taxpayers are realizing that the new law’s lower tax rates and doubling of both the standard deduction and the child tax credit did not make up for the many deductions the law now limits or eliminates. According to the IRS, the number of taxpayers who qualified to receive a refund during the first week of this year’s filing season declined 24.3 percent from the same period last year, while the average dollar amount of refunds the agency did issue declined 8.4 percent. By Feb. 15, the average refund declined even further, falling 16.7 from the same period last year.
So how can you pay a tax bill that you did not expect to receive? The IRS offers several options for you to pay your liabilities either immediately or through an agreed-upon installment plan, for which interest and penalties may apply.
Here are some electronic payment options for you to consider:
- Electronic Funds Withdrawal (EFW) allows you to pay through your bank account when you e-file your tax return. EFW is free and only available through e-File.
- Direct Pay allows you to make a payment directly to the IRS from your checking or savings account. The service is free and you will receive an email confirmation when the agency receives your payments. This option allows you to schedule payments up to 30 days in advance and change or cancel them two business days before the scheduled payment date.
- Credit Card or Debit Card payments are accepted online, by phone, or with a mobile device. Card payment processing fees vary by service provider, but no part of the fee goes to the IRS.
- Pay with Cash is available when you visit one of 7,000 participating retail partners across the country, such as 7-Eleven stores, which can be found at https://www.irs.gov/paywithcash. Cash payments come with a $3.99 fee.
If you are unable to pay your tax debt immediately, you may visit the IRS’s online payment tool at https://www.irs.gov/payments/online-payment-agreement-application to apply for a payment plan. Eligibility will depend on your unique tax situation, and fees will apply.
If you do receive a tax bill for 2018, the good news is that you still have time to take action and minimize or even eliminate any amount you may owe in 2019. One of the easiest ways to accomplish this to the change the number of allowances you claim on your Form W-4, which tells your employer how much to withhold from your pay for tax purposes. If you are self-employed, you may choose to increase the amount of the estimated tax payments you make to the IRS each quarter. A tax accountant can help you estimate your projected income and related year-end tax liabilities and implement strategies to help you maximize your tax efficiency.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at email@example.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.