How Electronic Payment and Agreement Options Can Help You Save Big and Avoid Penalties and Interest

Last updated 03/08/2024 by

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Summary:

With the tax deadline approaching, taxpayers need to file their returns on time and avoid penalties and interest charges. The IRS offers several electronic payment options, such as Direct Pay, Electronic Funds Withdrawal (EFW), and Electronic Federal Tax Payment System, which provide the quickest and simplest method to make a one-time payment without logging into an IRS Online Account. The IRS also offers payment plans and agreements, and partial payments are encouraged. Taxpayers can use the Online Payment Agreement to pay off their outstanding balance over time or request an extension to file their tax returns.

As the tax deadline looms closer, the IRS has issued a reminder to taxpayers that they can prevent late filing and interest penalties by submitting their tax returns and any payments due by April 18. If you’re struggling to make payments on time, the IRS provides various options to assist taxpayers who are unable to make payments by the deadline. The IRS has multiple options to help you file your tax returns and avoid late filing penalties.

If you earned $73,000 or less in 2022, you can take advantage of IRS Free File to electronically file your taxes. If you need more time to file your return, regardless of income, you can also use IRS Free File to electronically file for a six-month extension before April 18, 2023. This gives taxpayers until Oct. 16, 2023, to file, but they must still pay what they owe by the April 18 deadline. Taxpayers affected by recent natural disasters have until Oct. 16 to make various tax payments, while those unable to pay the full amount of taxes they owe by April 18 should still file and pay what they can to reduce total penalties and interest.

There are several methods available to make electronic payments, as well as options for a payment plan or agreement.

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IRS Online Account

An IRS Online Account can make your tax filing process easier and smoother. By having an account, you’ll have access to important information that can help you prepare to file your tax return, pay any outstanding balance, and stay on top of any notices from the IRS. You can view all sorts of helpful information, such as:

Adjusted Gross Income
Payment history and any scheduled or pending payments
Payment plan details
Digital copies of select notices from the IRS

An IRS Online Account can also be used to securely make a same-day payment for your outstanding 2022 tax balance, pay your quarterly estimated taxes for the 2023 tax season, or request an extension to file your 2022 return.

If taxpayers miss the April 18 deadline, they may face late payment penalties and interest charges. But making a payment, even a partial payment, can help to reduce those fees.

Other electronic payment methods

Direct Pay: available on IRS.gov, Direct Pay offers the quickest and simplest method to make a one-time payment without signing in to an IRS Online Account. Securely pay federal taxes directly from your checking or savings account without any fees or pre-registration. Schedule payments up to 365 days in advance. Immediate confirmation after payment.
Electronic Funds Withdrawal (EFW): File and pay electronically from your bank account when using tax preparation software or a tax professional. Only available when electronically filing a tax return.
Electronic Federal Tax Payment System: Safe and convenient way to pay individual and business taxes by phone or online. Enroll at eftps.gov or call 800-555-4477.
Debit or credit card or digital wallet: Pay online, by phone or with a mobile device through authorized payment processors. A fee is charged by the processor. Check IRS.gov/payments for authorized processors and phone numbers.

Alternative payment options

Cash: Pay taxes in cash at an IRS Cash Processing Company service. Note that this option requires a four-step process, so start early. Find more details and answers to FAQs at IRS.gov/paywithcash.

Check or money order: Make payment payable to “United States Treasury,” enclose a 2022 Form 1040-V payment voucher and include the following on the front of the check or money order:

“2022 Form 1040”
Name
Address
Daytime phone number
Social Security number

For taxpayers unable to pay in full

IRS encourages partial payments and exploring different payment options, such as taking out a loan, for the remaining balance to avoid high interest and penalties. Acting promptly is important as tax bills accumulate more interest and fees over time. Find all payment options on IRS.gov/payments.

Online self-service payment plans

Individual taxpayers can set up a payment plan to pay off their outstanding balance over time using the Online Payment Agreement. The online application takes just minutes to complete and taxpayers receive an immediate notification of approval. Some plans may have setup fees.

Online payment plan options for individual taxpayers:

Short-term plan: For balances under $100,000 (tax, penalties, and interest combined), pay in full within 180 days.
Long-term plan: For balances under $50,000 (tax, penalties, and interest combined), make monthly payments for up to 72 months. Direct debit is required for balances between $25,000 and $50,000, and it eliminates the need for monthly payments and reduces the chance of default.

Existing payment plans can be modified using the Online Payment Agreement, including changes to payment dates, amounts, and direct debit bank information. Visit the Online Payment Agreement for details.

While interest and late-payment penalties still apply on unpaid taxes after April 18, the penalty rate for failing to pay is reduced by half during an active installment agreement. More information on payment plan costs can be found on the IRS’ Additional Information on Payment Plans Additional Information on Payment Plans webpage.

Other payment options

Offer in Compromise – Certain taxpayers can settle their tax liabilities for less than what they owe, which can be determined by using the Offer in Compromise Pre-Qualifier tool. The IRS provides an Offer in Compromise video playlist, available in Spanish and Simplified Chinese, to guide taxpayers through the necessary paperwork.
Temporary delay of collection – Temporary delay of the collections can be requested by contacting the IRS, but penalties and interest continue to accrue until the full amount is paid.
Other payment plan options – If taxpayers don’t qualify for online self-service, they can explore other payment plan options by contacting the IRS using the phone number or address on their notice. For individuals and out-of-business sole proprietors who owe $250,000 or less, proposing a monthly payment that pays the balance over 10 years is one available option. This payment plan doesn’t require a financial statement, but it still requires a determination for the filing of a Notice of Federal Tax Lien.

Key takeaways

The IRS provides options to help taxpayers file their tax returns and avoid late filing penalties.
The IRS Free File program allows taxpayers to electronically file their taxes or request a six-month extension before April 18, 2023.
Taxpayers affected by recent natural disasters have until Oct. 16 to make various tax payments.
Various electronic payment methods are available, including Direct Pay, Electronic Funds Withdrawal (EFW), Electronic Federal Tax Payment System, debit/credit cards or digital wallets, and cash.
Partial payments and exploring different payment options, such as taking out a loan, can help taxpayers who are unable to pay in full.
Individual taxpayers can set up an online payment plan, which has a short-term and long-term plan option.
The IRS encourages taxpayers to act promptly to avoid high interest and penalties.

Allan Du

Allan Du is a personal finance writer passionate about helping people take control of their finances. Allan strives to present readers with the right knowledge and tools, so they can make informed decisions about their money and build wealth. When he is not writing about finance, Allan enjoys pursuing his other interests, including powerlifting, kickboxing, and investing. He is an active follower of economic and political trends, always keeping watch on the latest developments that could impact the financial world.

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