The Times Herald (Norristown, PA)
Millennial Money
be expensive debt,” says Luke Sotir, a Massachusetts financial advisor at Equitable Advisors.
The IRS offers payment plans if you can’t cover your balance in a single lump sum. Your options include:
SHORT-TERM PAYMENT PLAN » This is best for those who can resolve their balances within 120 days. This plan has no setup fee, though you may accrue penalties and interest until your balance is paid off.
LONG-TERM PAYMENT PLAN » An option if you need more than 120 days to pay off your balance. Fees for this plan vary
depending on the setup and payment options you choose.
OFFER IN COMPROMISE » You settle your debt with the IRS for less than you originally owe. This may be best if you can’t afford your bill and don’t foresee an ability to pay in the future. Use the IRS prequalifier tool to see if this might work for you.
Make next year better
Tax season 2020 might be a bummer, but you can take steps to avoid this fate again next year.
FOR THOSE WHO RECEIVE W-2 TAX STATEMENTS » The W-4 form is your best friend. This form, which you filled out when starting your job and likely forgot about, determines your withholding, or the part of your pay that your employer sends directly to the government to cover
your tax obligation. Withhold too little from each paycheck, and you’ll owe the IRS.
You can alter your withholding level at any time, but Pickering suggests revisiting your W-4 right away: “(Readjusting your withholdings) is a straightforward process, and doing it when you’re reviewing your taxes is the perfect time ... because you have all your information right there.”
Use the IRS tax withholding estimator to get a feel for the process and make sure you have the right amount of taxes drawn from each paycheck. Even if you got a refund, consider adjusting your withholding. The refund you got is simply how much you overpaid the government, and having that money in your paychecks throughout
the year can help your finances.
IF YOU’RE A 1099 WORKER » You’re responsible for sorting out your tax payments. The self-employment tax rate is roughly 15%, so be sure to set aside at least that portion of what you earn to cover what you owe the IRS. Make it easy on yourself by setting up automatic deposits into a high-yield savings account. That way, you’re more likely to have enough money at tax time and you can earn a little extra in interest throughout the year.