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IRS gives help to out of work taxpayers

The Internal Revenue Service is giving some help to taxpayers battling to cover their taxes as a result of unemployment or a substantial loss of earnings.The agency said Wednesday it’s going to give certain taxpayers a six-month grace period on “failure-to-pay” penalties, that are typically assessed every month a person is late paying their taxes.

With no grace period, a person who’s late paying their taxes initially incurs a fee of 0.5% of the government tax bill. That fee could increase the later they become — having a cap of 25%. However some taxpayers won’t incur any fees until Oct. 15.

Despite the fact that taxpayers won’t get hit with the penalty, they are going to still accrue interest throughout the six-month period. During the period of one year, that comes down to about 3% of the annual government tax bill.

Taxpayers who are eligible for this grace period will need to have been unemployed for 30 consecutive days or longer during 2011 or 2012 — up to the April 17 filing deadline this year. Self-employed taxpayers who saw their business income drop 25% plus because of the economy will also be eligible.

It comes with an income limitation, however. Married taxpayers who file jointly cannot claim income that exceeds $200,000, while a person who files as single or head of household cannot exceed $100,000 in income. Those people who are still qualified for the relief will have to complete Form 1127A, located on the internal revenue service website.

On top of the penalty relief, the government is allowing more taxpayers to spread out payments on their own tax bills. Taxpayers with bills up to $50,000 are qualified for installments — up from a previous cap of $25,000. Plus the taxpayers aren’t forced to file a fiscal statement to complete the task.

Taxpayers who owe in excess of $50,000 still have to complete a Collection Information Statement to be able to qualify.

The Internal Revenue Service also boosted the highest installment term to 6 years, up from 5 years. Taxpayers entering these new installment agreements have to enroll in monthly direct debit payments. And interest rates are still charged on the outstanding balance.

The brand new efforts announced Wednesday are an expansion of a continuing effort that began in 2008 targeted at helping taxpayers who sadly are struggling to cover their taxes.