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Is it better to owe the IRS, or the credit card companies?

Posted on 2011-03-04
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Last Modified: 2012-05-11
Assume that one does not pay their tax bill, and they receive a notice of amount owed plus penalties and interest. Then they work out a payment plan with the IRS over time. Would the percentage rate penalties and interest that the IRS charges be worse or better than the bloodsucking credit card companies? Thanks....
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Question by:jazjef
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by:John Hurst
ID: 35041501
Where I am (north of you), if you file on time, then there is no penalty. Interest does accrue on late payments but that rate is vastly less than credit card companies. Pay them first by all means, and the IRS second if you must choose. Ultimately, if you have too much credit card debt, you will probably have to split things.

Just remember, short of loan sharks, credit card interest is just about as high as it gets. If you can manage it, get a bank loan that you can pay off and then discharge the credit card debt. ... Thinkpads_User
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by:jazjef
ID: 35041766
Yes... that's what I was thinking. My idea was that credit card companies are always looking to squeeze consumers for the most money possible in every way possible...and the IRS simply wants what you owe. I would rather pay off the credit cards and get beat up by the IRS than paying the IRS right off and continue getting beat up by the credit car companies. Either way I take a beating.... I'm just wanting the least pain possible.
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by:aleghart
ID: 35042964
That could easily backfire.  The IRS will garnish your wages.  They contact your H.R. department and take money from your pay _before_ you get the paycheck or direct deposit.

Been there.  After fixing the problem, and many desperate phone calls, the IRS returned the money.

Did not save the embarrassment with my employer.
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by:John Hurst
John Hurst earned 166 total points
ID: 35043244
>>>  The IRS will garnish your wages

Yes, utlimately they can, which is why I suggested payments might have to be split between credit card companies and the IRS. It takes a while before they garnishee and also, you can talk to them, explain the issue, you can usually work out a payment schedule with them. Don't ignore them.

>>>  I'm just wanting the least pain possible.  

Do talk to your creditors and the IRS and work out with them what you can pay.
... Thinkpads_User
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by:jazjef
ID: 35043430
Sounds like bankruptcy is better... the law prevents you from being fired if you file for chapter 7---that is, if the reason for your firing is the chapter 7 filing itself; they could always make up some other reason or 'terminate at will' citing no reason. I'm already working with one of those "credit/debt reduction" counseling agencies.... they take $50/mo for their service.... but the money is worth it because they got my interest reduced on some really high cards.
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by:jazjef
ID: 35043451
By the way, I'm not talking about simply not paying the IRS... I'm talking about not paying them the complete amount when it's due. I can pay them something at first, and then pay them a little each month. My plan is to pay off a huge chunk of the unsecured debt, then pay some of the tax, and then contact the IRS to talk with them about a plan to pay off the remainder.
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by:John Hurst
ID: 35043480
My experience with the IRS is more limited that longer experience with the CRA. In general, governments in the US and Canada will lend a sympathetic ear to a genuine payment plan. ... Thinkpads_User
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by:jazjef
ID: 35043703
Yes, that's what I was thinking. I'm not going to ignore them nor run and hide. I just need to pay it over time and get the headhunting credit card companies off my back. The CC companies are ruthless and always changing their rules to generate unnecessary fees and penalties to skirt the laws. The IRS doesn't do this....they just want the money you owe and are very limited in their ability to generate their own rules to hit you with more fees etc.
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by:MidnightOne
ID: 35077809
IRS will work with you, and as long as you're working with them, make a schedule and making payments on schedule, they'll be happy.

I owed roughly 10% of my gross income one year thanks to an HR screw-up. Set up the payments over 18 months and paid it off without a worry.
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by:jazjef
ID: 35079772
Thanks MidnightOne....that's encouraging to hear. Thanks for contributing to my stress-reduction therapy...
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MidnightOne earned 167 total points
ID: 35082616
Despite all the TV dramas to the contrary, the IRS doesn't want to break you - they just want the money you owe. Mind you, interest still accumulates during the payoff period, however it's far less than a credit card company's "you missed a payment" rate of 24%.

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by:jazjef
ID: 35084163
MidnightOne:
This was the exact reason for this post/thread. I was pretty sure that the IRS only wanted what's owed them and was not looking to 'milk' people for every dime like the CC companies do. You're so right----miss one payment and you go from 10.99% to 24% ----ouch. However, I wasn't so confident that I didn't need to hear good assurance from others... thanks.
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by:aleghart
aleghart earned 167 total points
ID: 35086638
After 10 years of early filed refunds, I missed a bill for a couple hundred dollars.  The garnishment was over $2,000 ...most of it was punitive.  Nothing to do with the actual amount owed.

The "IRS" as a system _does_ want to milk people for money.  That's why they exist.  Take money (milk) from us (cows) and give it to someone else.  Ideally, do it at a level that can be sustained without hurting the cow...but not always.

But, the IRS also has human beings that understand the reasons (good or bad) for the rules, and know how to work with taxpayers who are being honest.

The punishment was lifted, and I paid only the tax amount due.  But, it took human intervention to get it done.
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Author Closing Comment

by:jazjef
ID: 35124812
Thanks to all.... I tried to be fair to all in points distribution.
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