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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7867
Experience:  15years with H & R Block. Divisional leader, Instructor
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My family and I are in desperate need of a home...this is an

Resolved Question:

My family and I are in desperate need of a home...this is an emergency situation. We have been granted a 401k hardship withdraw however the amount I am able to take is just enough to cover the cost of the down payment and closing costs in order to move in NOW! However because every penny we were approved for is needed, I have opted NOT to pay taxes at this time on the funds. We are taking out 34k and I need to know how much I will need for taxes and if we make payment on that amount for a year what would I be expected to come up with? I am able to pay about $350 a month on the tax bill and they will be able to take my refund as well so it will be paid off by time they take my 2015 tax refund. What is the interest rate and/or penalty for making payment arrangements. Also will this effect my credit if payments are made monthly and on time. Will it show up on my credit or effect my job or my deductions if a payment plan is made and adhered to?

Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
The IRS will automatically accept requests for installment agreements of up to $50,000, and for the first quarter of 2013, its interest rate is just 3% --the rates change but are published by the IRS when they do. The minimum payment is $25.
If you fail to file on time, the IRS charges 5% of the amount owed for each month that your return is late up to five months. Once you file, you still have to pay one-half of 1% of the amount owed for each month that the payment is late. Once you set up an installment agreement, you get somewhat of a break, as the late penalty drops to .25% per month.
There's also a one-time charge to set up the installment agreement -- $105, or $52 if you agree to have your payments automatically deducted from your bank account.

Robin D. :

If you can pay $350 a month then the IRS will accept that.

Robin D. :

When you file the return, you will add the $34k to your regular income. Then you will be be able to see the exact amount of tax that is owed.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

We were going to get a bank loan to cover the taxes but they want 12% interest so it is better to pay the government 3% interest right? Is there a standard in which they use to figure what payment they will take or do we tell them what we can manage. If we file on time we do not have to worry about that 5% late return fee, we just call right away and set up payments to avoid that correct?

Customer:

Will this effect our credit or deduction?

Customer:

Thank you for your prompt reply

Customer:

Also does it have to be resolved within a certain time frame...I plan to throw every extra dollar at the tax bill so I am sure it will be paid by the time they take 2015s refund.

Robin D. :

You can tell them when you apply what amount you can pay. You can even apply online since your amount should be below $50,000. If you file on time you will be charged a late payment of tax but not a late penalty for file.
60 months is allowed. If you can pay with in 120 days then you will pay less.
Remember the interest continues to accrue so the sooner you can pay it off the better.

Robin D. :

It will not effect your deduction. The IRS is required to agree to an installment plan if your balance due is $10,000 or less and you meet all of the following criteria:



  • For the previous five years you haven't filed late or paid late.

  • All your tax returns are filed.

  • Your monthly installment payments will pay off your balance in 36 months or less.

  • You've had no installment agreement in the previous five years.

  • You agree to file on time and pay on time for future tax years.


The minimum monthly payment the IRS will accept is the grand total of your balance due (including penalties and interest) divided by thirty.

Robin D. :

You will not know what that will be until you complete your return and see what your balance due is.

Customer:

Ok great and I have a good idea what it will be

Robin D. :

Good

Customer:

the 401k people told us what they would have taken out if we elected them to do that

Robin D. :

Yes that is normal for 20% to be held

Customer:

Its very scary to owe taxes but with the % rate it seems its better then owing the bank

Robin D. :

Everyone has to look at their individual situation to make sure

Customer:

that 20% is usually a good break even point?

Robin D. :

Generally but if someone has credits and deductions that helps too

Robin D. :

Did you check on borrowing first

Robin D. :

That is not a tax event when you borrow from your 401K

Customer:

yes its at 12% interest

Customer:

oh from 401k

Customer:

yes the plan only allows hardship

Robin D. :

Each plan is diffirent

Robin D. :

different

Robin D. :

sorry

Customer:

and there are only 4 reasons they will let you do it and primary home is one

Robin D. :

Yes they must follow ERISA rules for those

Customer:

I think we will have it paid in a year with using both refunds...they will just absorb those right

Robin D. :

Any refunds will be taken even when you are in an installment agreement, yes.

Customer:

ok great.

Customer:

is this a private caht

Customer:

chat

Robin D. :

You can ask that it be private after you rate. Of course your identity is private even way

Customer:

Thank you for your time I really think you did a great job answering my questions.

Robin D. :

You are most welcome.
Your positive rating is always thanks enough.

Customer:

so as long as I make a payment plan of 350 and keep with it...we should be in fine standing with the irs

Robin D. :

Yes you will

Robin D. :

I really enjoyed working with you – please feel free to request me again when you come back to ask another question.
You will find the request feature when you come back under your MY QUESTIONS section.

Customer:

thank you

Robin D. :

Best wishes in your new home!

Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 7867
Experience: 15years with H & R Block. Divisional leader, Instructor
Robin D. and 2 other Tax Specialists are ready to help you

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Robin D.
Robin D.
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15years with H & R Block. Divisional leader, Instructor