What if I Cannot Pay The Massachusetts Or Federal Taxes I Owe?

Learn the options that are available to you if you are struggling to pay state or federal taxes.

Most people in Massachusetts are liable for paying state and federal taxes. However, according to a recent report from the Tax Policy Center, an estimated 45.3 percent of people across the country did not pay federal income taxes, either because they did not earn enough money or because they had enough tax breaks to eliminate any liability.

Still others may find themselves unable to pay either the amount they owe in state or federal taxes. Here are some options for people who are in that position.

Owing Taxes In Massachusetts

First, it is imperative to file a tax return regardless of whether or not the amount due can be paid. Failing to do so could mean owing the government more money in late fees or even facing more serious legal issues.

As the Massachusetts Department of Revenue points out, taxpayers who are able to pay 80 percent of the amount owed may qualify for an extension. When the amount of money owed is less than $5,000, a taxpayer can enter into a payment agreement with the Department of Revenue that would enable him or her to pay down the balance in installments. However, it is possible that interest and penalties will add to the balance owed. Those who owe more than $5,000 will have to contact the state collections bureau in order to set up a payment agreement.

Owing Federal Taxes

Similar to state returns, federal returns should be filed by the deadline in order to avoid any late filing fees or a tax-related investigation. The Internal Revenue Service encourages people to file and pay whatever they can by the due date. Also similar to the state process, penalties and interest will accrue on an unpaid balance. Therefore, paying down the amount owed by the deadline will minimize any extra amounts that may be charged.

The IRS outlines several options for those who are struggling to pay their tax bills, such as the following:

  • Request an extension.
  • Those who owe $50,000 or less can set up a payment installment agreement online.
  • Those who owe more than $50,000 can still set up an installment plan but will have to fill out a different form.

There is also the option of an offer in compromise. These agreements enable people who owe more than they can pay to settle their tax debt for a lesser amount. The IRS will consider someone's income, expenses, ability to pay and asset equity when determining whether or not he or she will qualify for an offer in compromise. To be eligible, the person applying must be current on all tax filings and may not be involved in any bankruptcy proceeding. The IRS encourages taxpayers to explore other options before trying to secure such an agreement.

An inability to pay is not a reason to avoid filing a tax return altogether, as that could eventually lead to more serious legal issues. Anyone with questions regarding this issue should speak with a Massachusetts tax law attorney.