IRS Tax Payment Relief During the Coronavirus Emergency

Help for Business Tax Payments During the Coronavirus Emergency

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On March 25, 2020, the IRS announced a new People First Initiative to help taxpayers who have difficulty paying their tax bills. In brief, the IRS will suspend installment agreements and offer in compromise payments until July 15, 2020.

The Small Business Administration (SBA) also has several programs to help small and medium-sized businesses get coronavirus disaster loans quickly.

After you have calmed down and collected your thoughts, discuss the possibilities with your tax professional. You could ask for an extension on your tax return. But filing an application for an extension on your taxes won’t help, because you still must pay most of the tax by the original due date, even if you are filing an extension. 

Your tax bill may include income taxes and self-employment taxes that are due based on your business profit. They may also include payroll taxes that your business has collected and that you cannot pay.

Most businesses pay income tax through the owner's tax return—Form 1040—except for corporations. Your business profit or loss is calculated and reported on a form based on your business type and it's added to your other income in calculating your total income and tax liability.

Installment Payment Plan Option

You may be able to apply online for an IRS payment plan. if you owe $50,000 or less, you may be able to apply online for a payment plan.

Existing Installment Agreement Payments Suspended

If you have an existing installment agreement, your payments due between April 1, and July 15, 2020, are suspended. The IRS won't default any installment agreements but interest will continue to accrue.

For Individuals. Here's how the installment payment plan works for individuals, including sole proprietors or independent contractors.

You can use the long-term installment agreement if you owe $50,00 or less in taxes, penalties, and interest and you filed your return.

You can use the short-term payment plan if you owe less than $100,000 in taxes, penalties, and interest. If you use this plan, you must pay with 120 days.

You can qualify to apply online if you meet the requirements above. To apply online, you'll need to create an account with the IRS.

For Businesses. Your business (not including sole proprietors or independent contractors) can apply online for a long-term installment plan if you have filed all the required tax returns and you owe $25,000 or less in taxes, penalties, and interest. 

If you aren't eligible to file your installment plan application online, you can use Form 9465 installment Agreement Request. 

You may be required to pay a setup fee, depending on the type of plan and how quickly you pay. 

Penalties and interest on the past-due amount may continue on unpaid amounts.

Offer in Compromise Option

The IRS Offer in Compromise (OiC) options allows taxpayers (including small businesses) to settle their tax debt for less than the full amount they owe. To qualify taxpayers, the IRS looks at the ability to pay, income, expenses, and assets owned. You may also qualify for the low-income certification. 

To help taxpayers affected by the coronavirus epidemic, the IRS has help for taxpayers who have an officer in compromise (OIC) or are applying for one.

You have until July 15, 2020, to provide additional information for a pending OIC, and the IRS won't close any pending OIC requests before July 15 without taxpayer consent.

You can suspend payments on an OIC until July 15, but interest will continue on unpaid balances.

The IRS won't default an OIC for taxpayers who haven't filed their 2018 tax return, but 2018 and 2019 returns must be filed by July 15.

Before you apply for an OIC, make sure you have filed all your tax returns and that you have made estimated tax payments. If you have employees, you must also have made all your federal payroll tax deposits. You can't apply if you are in the bankruptcy process. You can use the IRS Offer in Compromise Pre-Qualifier that takes you step-by-step through a questionnaire.

There are other qualifications and limitations to the OIC program, and you may want to talk to an attorney about the process. For more information, see this IRS Form 656 Booklet or the Offer in Compromise FAQ page.

Borrow the Money From Your Bank

You might ask your bank for additional working capital (basically, a line of credit) to cover this tax bill. It will cost you, but you will avoid any penalties and interest on unpaid taxes.

During the Coronavirus emergency, the Small Business Administration (SBA) has new programs to help small and medium-sized businesses get SBA-backed loans. See this article describing the process of getting a Coronavirus Disaster Loan.

IRS installment plans charge interest and penalties, so you will want to compare the rates on an installment plan to the rate you can obtain for a loan.

Borrow the Money From Yourself

Be careful here. If you have some cash value in a whole life policy or potentially other employee or insurance plans, you might want to use that. If you have money in an IRA and you are over 59 ½ or you are willing to take the penalty, you could cash it in.

You can either loan money to your business or invest in your business. Whether the funds are a loan or investment is a decision based on your particular circumstances. Keep in mind here as well the rates on the various plans and factor in any penalties when looking for options.

Borrow From a Friend or Family Member

This is not the best situation, because there may be “strings” attached. Alternatives include asking someone to co-sign on a loan for your business. Some other considerations for borrowing from family might be the credit score of the family member.

A similar alternative might be peer-to-peer lending. Peer-to-peer lending allows you to borrow from online lending platforms with funding from multiple investors. Some of these online lending platforms even have terms for structuring investment from friends and family which can help with some of the conflicts that arise.

Use Credit Cards

Using credit cards to finance various types of business financing needs is also sometimes helpful. Credit cards offer a revolving line of credit which gives you an open credit line similar to a more complex subscription line you might get for your business through a bank.

Making Estimated Payments

If it looks like you will have a large tax bill every year, you will need to start planning to pay it off using estimated payments, to avoid fines and penalties for underpayment next year. Starting now, make a general calculation of your business tax bill for the current year, and start making estimated tax payments. Estimated payments for the year are generally due April 15, July 15, and October 15, then January 15 of the following year. Incorporate this annual schedule into your business planning to avoid problems.

Be sure to include calculations for self-employment tax in your estimates. Self-employment taxes (Social Security/Medicare) are calculated on your business profits, or your share of that income if you are in a partnership or LLC.

Article Sources

  1. IRS. "Apply Online for a Payment Plan." Do You Qualify? Accessed Mar. 28, 2020.

  2. IRS. "Additional Information on Payment Plans." What if I am not eligible to apply online...? Accessed Mar. 28, 2020.

  3. IRS. "Apply Online for a Payment Plan." Plan Options and Costs. Mar. 28, 2020.

  4. IRS.Additional Information on Payment Plans." How do I manage my plan to avoid default? Accessed Mar. 28, 2020.

  5. IRS. "Offer in Compromise." Accessed Mar. 29, 2020.

  6. IRS "General Offier in Compromise (OIC) Information." Do I qualify for the low-income certification? Accessed Mar. 29, 2020.