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  • The Pros and Cons of Payroll Tax Debt Relief Options

If you're struggling with payroll tax debt, you're not alone.

Many businesses and individuals find themselves in this situation, but there are options for relief. 

In this post, we'll explore the pros and cons of different solutions, so you can make an informed decision about how to tackle your payroll tax debt.

Understanding Payroll Tax Debt.

Payroll tax debt is a common problem for businesses and individuals alike. It occurs when an employer withholds taxes from their employee's paychecks but fails to remit those taxes to the government.

This can result in significant penalties and interest charges, making it difficult to pay off the debt. Understanding the causes and consequences of payroll tax debt is the first step in finding a solution.

Pros and Cons of an Installment Agreement.

An installment agreement is a payment plan that allows you to pay off your payroll tax debt over time.

If you cannot afford to pay the entire payroll tax debt fully, you might qualify to make a Partial Payment Installment Agreement based on your ability to pay. 

The pros of this option include the ability to make smaller, more manageable payments and the potential to avoid collection actions such as wage garnishment or bank levies.

However, the cons include the accrual of interest and penalties on the remaining balance and the potential for default if you miss a payment. Another con is that usually, you will need to make financial disclosures unless the amount owed is $25,000 or less.

Considering your financial situation and ability to make consistent payments is important before choosing this option.

Pros and Cons of an Offer in Compromise.

An offer in compromise is an agreement between you and the IRS to settle your payroll tax debt for less than the full amount owed.

The pros of this option include the potential for significant debt reduction and the ability to resolve your tax debt quickly. However, the cons include the need to provide detailed financial information to the IRS, the potential for rejection of your offer, and the requirement to pay the agreed-upon amount in full within a short timeframe unless you can negotiate another resolution option described in this blog.

It’s important to consult with a tax professional before pursuing this option to determine the right choice for your specific financial situation.

Pros and Cons of Currently Not Collectible Status.

Currently Not Collectible (CNC) status is an option for those who cannot pay their payroll tax debt due to financial hardship.

The pros of this option include a temporary break from collection activities, no requirement to make payments, and protection from wage garnishment and bank levies.

However, the cons include the potential for interest and penalties to continue to accrue, the possibility of the IRS reviewing your financial situation periodically, and the fact that the debt will not go away and will still need to be paid in the future unless the IRS debt becomes uncollectible after a 10-year collection period expires.

It’s important to weigh the pros and cons and consult a tax professional before pursuing this option.

Seeking Professional Help for Payroll Tax Debt Relief.

When dealing with payroll tax debt, it can be overwhelming to navigate the various relief options available.

Seeking professional help from a tax attorney, certified public accountant (CPA) or Enrolled Agent can provide valuable guidance and support.

These professionals can help you understand the pros and cons of each option, negotiate with the IRS on your behalf, and develop a plan to resolve your debt.

If the payroll tax is a large enough debt, your case may be assigned to a local Revenue Officer. In this case you should consult with a tax professional since Revenue Officers can quickly enforce collection.

While there may be a cost associated with hiring a professional, the peace of mind and potential savings, in the long run, can make it a worthwhile investment.

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