By Teresa McUsic

For those recently unemployed or facing a cutback in salary, the last thing you likely want to think about is your federal taxes.

But with the April 15 tax deadline about one month away, now is the time to figure out your best strategy.

Although most Americans expect a tax refund, some do owe. The unemployed could be especially hit if they’ve withdrawn money from a retirement plan in 2008 or not taken the federal tax-withholding option Texas offers from their unemployment benefit checks, said Lacey Riley, a Flower Mound CPA.

The penalty for early withdrawal from a 401(k) is high — 10 percent of the taxable amount, plus the amount withdrawn is taxable at the account holder’s tax rate, Riley said. For example, if you took $5,000 from your retirement plan to cover expenses last year, you would owe a $500 penalty and you would have to add the $5,000 to your taxable income.

Texas will withhold 10 percent of your weekly unemployment benefit amount and send it to the IRS for you, according to a spokesman for the Texas Workforce Commission. But you must complete and return the tax-withholding form. Otherwise, you must pay taxes on that income as well. (For those unemployed in 2009, the stimulus package allows the first $2,400 in unemployment benefits to be free of federal tax, but this does not apply to 2008.)

Don’t do nothing
If you can’t pay all or part of your taxes next month, the most important thing to do is to go ahead and file your tax return, said Cyndy Kimberling, a Fort Worth CPA with Kimberling McFarland & Associates.

“You want to go ahead and file, because if you don’t, there are two penalties: failure to pay and failure to file,” she said.

Failure to pay carries a fine of 0.5 percent of the amount owed per month, up to a maximum 25 percent. The interest rate changes every quarter; starting April 1 it will be 4 percent of the unpaid balance, Lacey said.

Filing your return is an important first step in letting the IRS know that you are having financial problems, said Clay Stanford, Dallas IRS spokesman.

“We realize economic times are challenging right now, and we are taking unprecedented efforts to help you resolve your personal tax situation,” he said. “We won’t know you need help, however, until you let us know.”

Payment options
Along with filing your return, you have some choices in how to pay, Kimberling said. The cheapest may be to pay your taxes by credit card, if you don’t have the cash available. Your credit-card interest rates may cost less than the interest rate and penalty costs that the IRS will charge you, she said.

Keep in mind, however, that you will also be charged a monthly “convenience” fee of at least 2.49 percent of the amount owed.

Ask for more time
If you don’t want to use a credit card, you may apply for a 120-day extension, said Riley. You have three ways to request the extension:

Go to the IRS Web site (www.irs.gov) and fill out the Online Payment Agreement.

Go to the Tax Assistance Center, 819 Taylor St., Fort Worth. (Others located around the state)

Complete and mail Form 9465, Installment Agreement Request to the IRS. The agency will inform you, usually within 30 days, whether your request is approved, denied or requires additional information.

There is no fee for the extension, but penalties and interest still apply, Riley said.
If you still can’t pay after the extension period, consider an installment agreement. In recent years, the IRS has allowed payment plans on taxes for up to 10 years without proof of hardship, Kimberling said.

There is a one-time fee of $105 (or $52 for direct deduction from your bank account) for the installment agreement. The plan must include the IRS interest and penalty charges.

Despite easy access to the program, the IRS entered into just 22,555 partial-payment installment agreements in 2008, according to recent Senate testimony from Nina Olson, the national taxpayer advocate.

Other options
“Offers in compromise” are another option. Here, the IRS agrees to settle a tax liability for less than the amount owed. It requires a 20 percent down payment of the offered amount, however, and fewer than 11,000, or 1 in 4, offers were approved in fiscal 2008, Olson said.

Use of the option was low last year, despite more than 2.6 million taxpayers with delinquent accounts or accounts reported not payable, Olson said.

“What has the IRS done instead with respect to taxpayers with delinquent accounts?” Olson said. “In FY 2008, it placed 1 million taxpayers into ‘currently not collectible’ status — meaning that the IRS is collecting nothing at all — and it took traditional enforcement actions about 3.4 million times, imposing 2,631,038 levies, placing 768,168 liens and conducting 610 property seizures.”

What’s ahead
In January, IRS Commissioner Douglas Schulman said he was giving more authority back to the field offices to work with taxpayers in trouble using its installment-agreement and offers-in-compromise options.

“There is no need to bury your head in the sand if you get a notice or letter from the IRS,” Stanford said. “The IRS is trying to work with taxpayers to resolve tax problems, especially taxpayers who have never before faced issues with the IRS.”