Options for Paying your Self-Employment Taxes

Written By: Erica Martin

Tax time is just around the corner.  Hopefully you’ re able to claim enough credits that you’ll actually end up getting money back from the government.  But what if you end up owing money to the IRS?  The IRS expects your taxes to be filed and paid by April 15, but there’s no way you’ll be able to pay by that date.  Don’t worry, you do have options when it comes to paying your balance due.

• • Request an extension of time to pay – You can request an extension of up to 120 days (4 months) – however you must be able to pay your taxes in full within that time-frame.

• Establish an installment agreement – This is the easiest way to take care of your taxes when you can’t pay the entire balance due right away.  You can establish an installment agreement by filling out an application online if you owe $25,000 or less.   You can also apply by phone (not recommended if you’re a freelancer who doesn’t have a lot of time to spend on the phone!), or by sending in Form 9465. If you owe more than $25,000, you’ll also need to send in Form 433-F. There is a user fee of $105 for setting up an installment agreement for the first time, so the first payment you make will have to be at least that amount.   Be aware however, that penalties and interest will continue to accumulate until you pay all the taxes you owe.

• Delaying Collection – if the IRS decides that you are unable to pay, it may delay collection until your financial situation improves.

• Offer in Compromise –  If you’re unable to pay your taxes in full, and you’ve looked at other options such as establishing an installment agreement, you may be able to submit an Offer in Compromise – this is an offer to the IRS to pay less than what you owe.  In order to make an offer in compromise, you’ll first need to determine if you’re eligible.   If you are, fill out the required paperwork and pay the $150 fee.  The IRS will let you know if your offer has been accepted.  You should be aware however that only a few Offers in Compromise are approved every year, so you should consider it only after you’ve exhausted all other options.

If you’re able to take advantage of one of the payment options above, you have several options for how to make those payments:

• • Send a check or money order –  This is the easiest option.  If you choose to send a check or money order, make it payable to the US Department of Treasury, and be sure to include the social security number of the person whose name appears first on your income tax return, the tax year you’re making the payment for (if you’re making an installment payment and you owe for more than one year, you’ll want to put the oldest year on the check or money order), and the tax form that you filed (1040 or 1040A).  You’ll send the check or money order to the address that’s indicated on your notice or bill.

• • Enroll at EFTPS.gov – If you’ll be making recurring payments, such as installment agreement payments or estimated tax payments, you’ll want to enroll at EFTPS.  This is how I’ve made most of my tax payments for the past several years – I find it is the easiest, safest and cheapest option; you can make a variety of tax payments using EFTPS, including paying your taxes for the current year.  Plus if you have more than one bank account you’ll be using to make your tax payments, you can set up enrollments for more than one banking institution. When making payments at EFTPS though, you’ll need to initiate them before the due date to ensure that they’re settled- the IRS considers the settlement date to be the date your payment is made.  You can make EFTPS payments online or by phone – if you’re making a phone payment call 1-800-555-3453 to take advantage of the voice response system – the payment will still show up in your online payment history.

• • Paying by Debit or Credit Card – there are a number of external websites that you can use to make credit or debit card payments to the IRS for a number of different payment types. Be aware however that these sites charge fees, so you only want to use them in situations where you won’t be able to make your payment on time through other means, such as EFTPS or by mailing a check or money order.  The fees are deductible on Form 1040, Schedule A, as a miscellaneous itemized deduction.  Check out Publication 529 for more information.

• Electronic Funds Withdrawal – If you’ve filed your taxes using tax software,  a tax professional, or a website such as efile.com, you’ve probably already used electronic funds withdrawal.   This method is easy because all you need to know is your bank routing number, your account number, the social security number of the person whose name appears first on the account, as well as a few other pieces of information – to find out what types of payments you can make using electronic funds withdrawal, check the software or the website you use to file your taxes, or consult your tax professional.

Paying your taxes is much easier with all these different options  – however if you still find that you’re  having trouble paying your taxes, contact the IRS to find out what other options might be available to you.

Related Posts:

• How Much Money To Set Aside for Income Taxes as an Independent Contractor
• What is Self-Employment Tax? 2023 [updated]
• Writing Off Your Home Office on Your Taxes?- What you Need to Know:
• File Your Work at Home Taxes- TurboTax
• Can I Write Off My Internet Expense on Taxes?