The interest rate the Internal Revenue Service charges on overdue taxes — currently 8 percent — may not sound too bad, said Mark Luscombe, principal tax analyst at CCH Inc. of Riverwoods, Ill. The company, a division of Wolters Kluwer, provides tax information and services to tax professionals.
"That's just the beginning," he advises. "Then you add in the penalties."
The penalty for failing to pay your taxes on time is 0.5 percent of the tax due each month, up to a maximum of 25 percent of the tax that is owed.
If you fail to file, the penalty is 10 times greater — 5 percent of the tax due each month, up to 25 percent.
The IRS offers an installment payment plan for taxpayers who qualify, and requests can be made on Form 9465, "Installment Agreement Request." But taxpayers should be forewarned that these agreements don't excuse them from late payment penalties — and there's a user fee of up to $105.
Even the IRS acknowledges this isn't a great deal, advising taxpayers: "Before requesting an installment agreement, you would consider less costly alternatives such as a bank loan."