If you’re a freelancer who has been impacted by COVID-19 and is feeling financially stressed by tax debts, recent changes by the Internal Revenue Service (IRS) may help you.
These changes fall under the Taxpayer Relief Initiative that the IRS rolled out this year. The initiative is designed to give taxpayers impacted by COVID-19 and who owe the IRS money some relief through a set of expanded tools for settling debts, including:
· Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
· The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
· The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers.
· To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient.
· Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
· Qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.
If you are a freelancer who owes taxes, consider these options for settling up with the IRS.
The IRS offers various options for short-term and long-term payment plans, including:
1. Installment Agreements via the Online Payment Agreement (OPA) system. This may be a good option if you owe $50,000 or less in combined income tax, penalties, and interest, or if your freelance business owes $25,000 or less combined and you have filed all your tax returns. For this option, you should be able to pay your balance over time. These short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.
2. Temporarily Delaying Collection. You can contact the IRS to request a temporary delay of the collection process. If the IRS determines that you are unable to pay, it may delay collection until your financial condition improves.
3. Offers in Compromise. Certain taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an Offer in Compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool. Now, the IRS is offering additional flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
4. Penalty Relief. The IRS also has reasonable cause assistance available for taxpayers who have failure to file, failure to pay and deposit penalties. First-time penalty abatement relief is also available if you have only been subject to these issues once.
More good news: You don’t necessarily have to talk to anyone at the IRS to take advantage of these relief plans. You can find additional information on IRS.gov, and if you are interested in requesting a payment plan, you can apply through IRS.gov without ever having to talk to a representative. For other relief, you may have to call the number on the notice you received from the IRS.
If you owe state taxes, you will need to check in with your state regarding payment plans and potential penalty relief as well.
Have you received a notice from the IRS? Don’t ignore it! Another key point for freelancers — don’t ignore notices you receive in the mail from the IRS. The IRS will not call or email you (if you receive tax notices this way, beware that they are likely a scam). The sooner you get in touch with the agency after receiving a notice in the mail and make a plan to take care of your obligations, the sooner you can eliminate the stress of owing a significant tax liability. If you need assistance navigating your IRS obligations, reach out to a tax professional who is experienced in IRS tax resolution. They can help you determine the best options for you.
Jonathan Medows is a New York City-based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He provides tax, accounting and business articles for freelancers on his website, http://www.cpaforfreelancers.com, which also features a blog and a comprehensive freelance tax guide. Please note, due to the high volume of inquiries in regard to COVID-19, Jonathan is not able to respond to individual requests for information at this time.