How To Pay Your Tax Bill: A Step-by-Step Guide

Getting hit with a tax bill is never fun But unfortunately, it’s a reality many taxpayers face each year. Whether you owe money due to underpayment, penalties, or other reasons, you’ll need to pay up to avoid further problems with the IRS

Paying your taxes might seem intimidating. But it doesn’t have to be scary or stressful if you understand your options and take action. This step-by-step guide will walk you through the best ways to pay your tax bill so you can put this behind you!

Step 1: Review Your Tax Bill & Understand What You Owe

The first step is to closely review your tax bill or notice from the IRS stating the amount you owe, Understand exactly why you owe money – is it from underpaying your taxes during the year? Penalties for filing late? Interest charges? Identifying the cause will help you avoid the same issue next tax season

Make sure the amount listed on your tax bill matches the total you calculated yourself. If you notice any discrepancies or have questions, contact the IRS right away to get clarification. Having the correct balance will ensure you pay neither too little nor too much.

Step 2: Consider Payment Plan Options With The IRS

If you cannot afford to pay your entire tax bill at once, the IRS offers payment plans to eligible taxpayers. This allows you to pay down your balance over time in smaller, more manageable amounts. Explore these options:

• Short-term extension: Gives you an extra 120 days to pay your taxes in full without accruing late fees. Simple interest still applies.

• Installment agreement: Allows you to make partial payments monthly over 6 years to pay off your tax debt. You must owe less than $50,000 total. Fees apply.

• Long-term installment plans: For larger tax bills over $50,000 owed. Lets you pay them off over several years. Requires providing financial information.

• Delaying collection: If facing financial hardship, you can request a delay in collections for 1 year. Interest and penalties continue accruing.

Before applying for an IRS payment plan, calculate the monthly amount you can realistically afford based on your income and expenses. This will help you pick the right option.

Step 3: Explore Financing Options To Pay Tax Bill Faster

IRS payment plans allow you to pay over an extended timeframe. But if you want to pay off your tax debt faster, consider these financing options:

• Credit cards: Many major credit cards allow you to pay the IRS directly. This incurs interest but lets you pay off the balance monthly.

• Home equity loan/line of credit: Borrow against your home’s equity to get a lump-sum for paying your tax bill immediately at a lower interest rate.

• Personal loans: Banks and credit unions offer installment loans that provide a one-time payout to pay off the IRS. Rates vary. Compare lenders.

• 401k loan: Allows you to borrow up to 50% of your vested balance (up to $50,000). Must pay back over 5 years with interest.

Weigh the rates and terms carefully. While financing can help eliminate IRS debt faster, added interest costs can pile up. Make sure your cash flow allows you to pay off the loan on time.

Step 4: Know The Available Payment Methods

The IRS accepts a variety of payment methods to satisfy tax bills. Choose the option that works best for your situation:

• Direct online payments from checking or savings accounts avoid fees and process immediately.

• Debit or credit card enables online payments through third-party processors. Fees apply.

• IRS Direct Pay lets you pay directly from a checking or savings account for free.

• Electronic funds withdrawal authorizes the IRS to pull funds from your bank account by providing your routing and account numbers.

• Check or money order via mail takes 10-14 days to process but doesn’t incur fees.

• Same-day wire transfer through your bank guarantees instant payment but has bank fees.

• Cash accepted at designated retail partners with PayNearMe. Fees apply based on amount.

Compare costs, processing times, convenience, and other factors to choose what works best for your situation.

Step 5: Consider Offsetting Future Tax Refunds

If you cannot pay your tax bill immediately, one option is to let the IRS deduct the owed amount from your future tax refunds. Here’s how it works:

• File your annual tax return as usual. If you are due a refund, it will be used to automatically offset what you owe the IRS.

• Any refund amount beyond what you owe will be issued to you. But your entire refund may be applied if the tax debt is substantial.

• This prevents your unpaid balance from growing with interest and penalties. And you avoid collection actions.

While not ideal, it ensures you will eventually pay off your tax bill without extra steps. Just account for getting a reduced or no refund until it’s fully paid.

Step 6: Address Any Unresolved Tax Issues

If there are ongoing issues or disputes regarding what you owe, get them resolved before attempting to pay your tax bill. This may require:

• Filing an amended return if mistakes were made

• Responding to audit inquiries from the IRS

• Appealing penalties and interest charges

• Verifying your income sources and deductions

Taking these steps first can potentially lower the amount you end up owing. Pay only once all discrepancies are addressed and you have clarity on what you definitively owe.

Step 7: Stay On Top Of Future Tax Bills

Paying off your current tax bill is just one step. Be proactive going forward to avoid owing the IRS again down the road:

• Adjust your withholdings using the IRS tax withholding calculator if too little is being deducted from your paycheck.

• Make quarterly estimated tax payments if you have self-employment or side gig income.

• Set aside money through automatic deductions to build up a dedicated “tax savings” account.

• Consult a tax professional to understand your tax liabilities and obligations.

• Stay organized with good financial record-keeping year-round.

Taking these preventative steps will help ensure you stay on the right track and avoid stressful tax bills!

Key Takeaways

• Carefully review your tax bill to understand what you owe and why before attempting to pay.

• Payment plans with the IRS allow you to pay over an extended timeframe if you cannot pay in full immediately.

• Financing through credit cards, loans, or 401k loans is an option to eliminate IRS debt faster.

• Know the available payment methods and choose one that best suits your needs and budget.

• Offset future refunds or resolve open disputes to help address unpaid tax bills.

• Implement preventative steps like proper withholding, estimated payments, and record keeping to avoid future tax debts.

With the right preparation and action steps, you can effectively handle paying off your tax bill. Follow this guide and you’ll be able to put this behind you!