IRS Offers Some Relief To Taxpayers

If you are unemployed or have a significant loss in income, you may qualify for tax relief from the Internal Revenue Service (IRS).  In addition, they are relaxing installment payment caps and terms.

Who qualifies?

Taxpayers, who have been unemployed for at least 30 consecutive days during 2011 or during 2012 up to the April 17, 2012 filing deadline, qualify for the relief. Self-employed taxpayers whose business income dropped 25 percent or more due to the economy also qualify.  There are income restrictions for both groups. Income has to be below $200,000 for married taxpayers who file jointly; and below $100,000 for taxpayers filing as single or head of household.  Those eligible are required to complete Form 1127A.

Penalties waived

Taxpayers who qualify will have a six-month grace period on “failure-to-pay” penalties. These penalties are assessed each month a taxpayer is late paying their taxes and the penalty fee increases with each month.  The penalty starts at 0.5 percent of the taxes due and can reach up to a maximum of 25 percent. With this relief offered, the taxpayer won’t pay any penalty fees until October 15, 2012.  However, interest will still accrue on the amount owed, which averages three percent annually.

Payment plans

Taxpayers with tax bills up to $50,000 are eligible for payment plans and don’t have to file a financial statement; previously the cap was $25,000 and a financial statement was required.  The maximum installment term was 60 months and has been expanded to 72 months. However, in order to get the extension, taxpayers have to sign up for monthly direct debit payments and interest is charged on the balance.

This is the Internal Revenue Service’s way of offering relief top the unemployed and those struggling to pay their taxes. This is a good first step.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Government, Internal Revenue Service, Money & Identity, Saving Money

This post was written by John Ulzheimer