Academic journal article Journal of Accountancy

Interest-Free Payments

Academic journal article Journal of Accountancy

Interest-Free Payments

Article excerpt

For those incorrigibles who pay their taxes late, the Internal Revenue Service issued updated guidance on how to do so properly.

The Omnibus Budget Reconciliation Act of 1993 established two new top marginal rates for individuals--36% and 39.6%--that are retroactive to January 1, 1993. To soften the impact, Congress enacted a transitional rule giving affected individuals the option of paying the added tax in three equal, interest-free installments.

Such an election must be made on a timely filed original 1993 federal tax return. For most individuals, this means they must file on or before April 15, 1994. For those seeking an automatic four-month extension, the deadline is August 15,1994.

To make the election, a taxpayer must attach new form 8841, Deferral of Additional 1993 Taxes, to form 1040. Form 8841 is used to compute the maximum amount that may be deferred until 1995 and 1996.

The first installment of additional 1993 taxes must be paid on or before the original due date as determined without regard to extensions. …

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