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updated 4/12/2011 6:08:03 PM ET 2011-04-12T22:08:03

Having financial difficulties? Then the last thing you need is to add the IRS to your list of headaches.

As the April 18 tax filing deadline looms, you may be unsure of what to do if you owe income tax and don't have the money.

It's a concern that's become more common in recent years as high unemployment has led to an increased number of freelancers and consultants, said Martin Press, a tax attorney with The Gunster law firm in Fort Lauderdale, Fla.

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Independent contractors are supposed to make estimated tax payments at least every three months, but many who are bringing in just enough to get by skip those payments. They do so even though nonpayment may result in penalties.

Taxpayers who have taxes withheld every week typically don't face large tax debts. Employees may, however, find they owe taxes if they haven't had enough withholding taken out of their checks.

Here's some important facts if you owe and can't pay:

  • Filing for an extension doesn't help. Although you'll have another six months to file your return, you won't have additional time to pay any taxes due.
  • Expect a penalty if you file a return without a payment. The Internal Revenue Service will charge 6 percent interest on the amount you owe, plus a late payment penalty — typically 0.5 percent per month.
  • Inaction will cost much more. The late-filing penalty is 5 percent per month, on top of the late payment charges. That's $50 a month for every $1,000 owed, just for failing to send in the paperwork.

It makes far more sense financially to file your return and request a payment agreement.

If you e-file and owe less than $25,000, you can arrange a payment agreement online at www.irs.gov. You may also arrange a payment plan by talking with an IRS agent on the telephone, or in writing.

"They're extremely lenient, so long as there is a clear effort to pay," said Matt Becker, a tax partner with accounting and consulting network BDO in Grand Rapids, Mich. He said it is sometimes possible to get penalties waived as well, because the IRS will take individual circumstances into consideration.

A payment agreement will halt collections, a process which can create more serious problems.

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IRS collection efforts start with letters requesting payment a few weeks after your return is received. You might also get a visit from a revenue officer.

Ignore them, and in about three months the agency will file a lien. That could result in the agency garnishing your wages to collect the taxes. That can cause more problems. "It doesn't give your employer a warm and fuzzy feeling about you," said Press.

If you're unemployed, you're not off the hook. The IRS may try to collect by contacting your bank and taking the money from your account.

Liens will be added to credit reports, and can significantly damage your credit score. As much as 100 to 160 points can be cut off a FICO score, which runs on a scale from 300 to 850 points. Taking such a hit will make it much harder to get a loan or credit card, or possibly cause a lender to charge a higher interest rate.

It could also hurt your chances of getting a job, if a potential employer checks your credit report, a practice that has become more common in recent years.

Because of a problem collecting payments, the IRS is encouraging those with payment plans to have automatic payments taken out of bank accounts. A vast majority of taxpayers default on their payment plans, Press said. "They're hoping with these automated pay agreements that they'll get better compliance."

One final note: If the government shuts down, you'll still have to file your return, or it will be deemed late and a penalty assessed. Processing of electronic returns will likely continue but paper return processing may be delayed.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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