NEW YORK — New York-- Are you approaching April 15 without enough money to pay your tax? The IRS will now let you set up installment payments automatically.
Just visit your local IRS office or call (800) TAX FORM and ask for the Installment Agreement Request (Form 9465). You report what's due and the monthly payment you'd like to make, and send in the form with your tax return. If you owe $10,000 or less, make a reasonable offer and have no other tax delinquencies, your proposal should go through automatically, says the Internal Revenue Service's Henry Holmes. (If not, the government will ask you for more financial information before reaching an agreement.)
You're charged a variable rate of interest on the outstanding balance -- 7 percent in the current quarter -- plus a late payment penalty of one-half of 1 percent a month (up to a cap of 25 percent). These penalties don't raise your monthly payment; instead they extend the term of your debt.
If you can't even afford to pay in installments, send in your tax return anyway. The government will track you down if your employer filed a report of your earnings, and there's an extra penalty for failing to file a return.
If you're self-employed, it's especially important to file -- because that gets you a credit for future Social Security benefits. Few people realize that you don't have to pay your tax to get a Social Security credit; you only have to report your earnings. Corporations report earnings for their employees, but the self-employed have to report their own.
Social Security is especially important to marginal, self-employed workers who don't earn enough to save for retirement. Yet they're the least likely to file returns.
Most taxpayers think that something awful will happen if they file a return and can't pay what's owed. But you won't be prosecuted (the government sues only cheaters, not folks who are broke). And you won't be thrown into prison.
When you file a return without paying all your tax, you'll soon get a bill from the government. Call the number on the bill and explain that you're broke. The government will try for a modest installment agreement, and might check your finances to see if you have any salable assets. If you have a house, the government won't seize it, but a tax lien might be filed against it, which would show up on your credit record.
If you truly can't pay, have no spare assets that can be sold (the IRS won't take away the equipment you use to earn a living or your only car) and can't afford to borrow, "the IRS has no option but to back off for a while," says retired IRS collection officer
Fulton Dobson. (Dobson's book, "You Can Eliminate Stress from the IRS," outlines your rights during collection efforts. It costs $10.95 from Starburst Publishers,  345-0096.)
Your debt will remain on the IRS computer. The government will check with you from time to time, to see if you're now earning enough to pay. Any future tax refund you're owed will be applied automatically to the back taxes due. But if 10 years pass, and your income never improves, the back tax will be canceled.
If your financial ship comes in, however, you'll have to start paying that back tax. If the debt looks unpayable, relative to your earnings, the IRS is now trying harder to make a deal for partial payments.
Continue to file every year, even if you never pay. You need 10 years of reported earnings to qualify for minimal Social Security retirement benefits. And always report your income in full. When figuring your retirement checks, Social Security will average your highest 35 years of earnings, so the more you show, the bigger the benefit you'll get. Any zero years drag down your average, which is especially costly to lower-income beneficiaries.