Millions Unable to Pay Taxes by Deadline Today

Accustomed to indebtedness for everything from vacations to refrigerators, millions of Americans now find themselves beholden to a scary new creditor: the Internal Revenue Service.

April 15 dawned today on more last-minute filers, extension seekers and people just plain unable to pay than at any time in years. The reasons? A federal withholding-tax cut designed to boost take-home pay, and the lingering economic slump the cut was created to address--not to mention the persistent unpopularity of saving money.

Take Bruce Brackett. The 46-year-old security supervisor at Pepperdine University owes the IRS $2,600, double what he got back last year. Unable to pay by today’s official deadline, Brackett filed for an extension so he can save up what he owes by the extension deadline of Aug. 16.

“I thought the extra money I was getting on my paycheck was a cost-of-living increase,” Brackett said. “My wife and I live for today. We spend what we make; it’s the American way.”

Paying up has stymied many Americans this year. More people than ever filed late, often because they were not getting a refund or could not pay what they owe, tax preparers report.

Many taxpayers blessed with falling rates on their home loans found themselves paying far less interest than the year before, slashing their mortgage interest deduction.

Overall, Americans are getting smaller refunds this year--an average of $971, $4 less than last year--and they are waiting longer to file. As of Friday, filings nationwide were down 6.5% from last year, the biggest gap in five years, the IRS said.

In Los Angeles, filings were running 23% behind as of March 27, when the national rate was 7.4%. High unemployment in the Southland is one possible explanation, said Nancy McCurley, an IRS spokeswoman.

Some people who had good jobs owe taxes on 1992 income even though they may be unemployed now. Others are struggling to pay taxes on their unemployment compensation, which is not taxed until the end of the year.

“Tax on unemployment can be very substantial,” said Marvin Weisbrod, vice president of technical services for Triple-Check Income Tax Service in Burbank. “When you’re someone who is out of work, you don’t have to owe thousands of dollars to be in trouble.”

But many, like Brackett, blame withholding changes put into effect last year, when President George Bush, in an attempt to boost the sagging economy, reduced the amount of taxes withheld from paychecks.

Sooner or later, the piper must be paid, and now the IRS worries that the lower rate of withholding--and the subsequent inability of many people to pay--could cause record numbers of Americans to drop out of the tax system.

The IRS responded last Wednesday by announcing that it would drastically reduce penalties for those who ask to file returns late and delay sending tax payments. Brackett is among the roughly 5 million Americans who will avoid 5% per month in non-filing fees. Late filers could still be liable for interest and penalties of up to 13% until the account is paid.

The IRS move has meant little to Brackett and others who say they were confused by the withholding change or simply cannot afford to pay.

At the downtown IRS office Tuesday, Mike Terrell, a food clerk at a Von’s in South-Central Los Angeles, said he did not make more money this year but discovered to his horror that he owes $1,200 to Uncle Sam, $900 more than last year.

“And I was off sick for three months,” he said. “If I had been working those months I might be $3,000 in the hole.”

Terrell filed a Form 9465, the IRS’ installment plan request. Borrowing from the IRS does not bother him, though, since he will only have to pay a 0.5%-per-month penalty on the unpaid amount, plus 7% annual interest, which is less than commercial lenders are charging.

Tom Connus, a property manager, said he was counting on a refund this year to pay back taxes he owes for 1990. “Now I am doubly hit,” he said. “I didn’t realize the withholdings change was happening until the end of the year.”

Tough economic times forced screenwriter M. Augustus Wright to seek out extension Form 4868 at the IRS office downtown. “The entertainment industry has been in a recessionary mode,” he said. “My income dropped 30% this year.”

Wright said he did not take any vacations and cut back on personal expenses. But he still owes the IRS thousands for his work as an independent contractor, money he needs more time to collect, he said.

Cleophus Nicholoson, a postal supervisor, was filing an extension to buy time. He owes the IRS $1,700 this year. Last year he got back $1,200, money he used for a vacation.

“Next time around, I plan to get someone professional to do my taxes and add property to offset my liability,” he said.

For the poor, filing seems almost as tough as paying. Samuel San Roman, 64, struggled to fill out his forms at the downtown IRS office. “The last eight years, I haven’t made enough money to pay someone to do it,” he said.

San Roman said he lives on Social Security, unemployment insurance and money earned working part-time jobs, which yielded him about $6,000 in 1992. He said he always files on time and always owes taxes.

“Every year I say, ‘I don’t have money. Send me to jail.’ But they say, ‘That’s all right. Can you pay $5 or $10?’ So I keep coming back.”

LATE TAX TIPS: Last-minute filing reminders, including what to do if you cannot pay what you owe. D1