The Color of Money / Home & Consumer

Color of Money: IRS Offering Some a Fresh Start

WASHINGTON -- For the last several years, the Internal Revenue Service has offered some relief for people having problems paying their taxes.

This tax season, the IRS has specifically targeted the unemployed and small-business owners for help through its "Fresh Start" initiative. The agency is also making a change to its installment agreement program, doubling the dollar amount it takes to be eligible for quick and streamlined installment payments.

"We have an obligation to work with taxpayers who are struggling to make ends meet," said IRS Commissioner Doug Shulman.

Taxpayers need to keep in mind that there are two distinct penalties when they don't file or don't pay their taxes on time.

-- A failure-to-file penalty is levied at 5 percent of your unpaid taxes each month or part of a month that your return is late. It caps out at 25 percent of your unpaid taxes.

-- A failure-to-pay penalty is assessed at one-half of 1 percent per month with an upper limit of 25 percent.

The IRS is giving eligible unemployed and certain self-employed individuals a six-month grace period from the failure-to-pay penalty. The reprieve applies for taxes owed for 2011 and only if people have requested an extension to pay their taxes. If you need more time to prepare and file your tax return, you still need to submit IRS Form 4868 to get an extension.

Even though Form 4868 tells the IRS you need more time to file, it does not excuse you from any taxes that are due.

Under Fresh Start, eligible individuals will now have until Oct. 15 to pay their taxes and avoid the failure-to-pay penalty. To qualify, you have to have been unemployed at least 30 consecutive days either in 2011 or this year up to the April 17 tax filing deadline. You get the same reprieve if you are self-employed and have experienced a 25 percent or greater reduction in your business income in 2011 because of the bad economy.

It's easy enough to apply for the program. Just complete IRS Form 1127-A "Application for Extension of Time for Payment of Income Tax for 2011 Due to Undue Hardship." The form is available on IRS.gov and is also due by April 17.

...continued

Copyright 2012 Washington Post Writers Group



Comments

blog comments powered by Disqus