For some people, this expense can be so large that they can’t pay off their full tax bill right away. If you’re in this situation, then you’re probably wondering about your options for covering your remaining balance.
It can be very stressful and overwhelming to get a huge tax bill that you can’t afford to pay. With the April tax deadline coming up quickly, many Americans are in this tough spot. If you owe more taxes than you can pay by the due date, there are ways to get your money back.
Evaluate Your Tax Bill
The first thing you should do is look over your tax return very carefully and make sure the amount you owe is correct. For things like deductions, credits, income amounts, and tax rates, check your math again. Sometimes mistakes happen, so make sure the amount on your tax bill is right.
If you used a tax preparer, contact them to discuss any questions or concerns about the tax amount due. They should be able to walk through the details with you.
Consider Payment Options
If the amount you owe is correct after carefully going over your tax return, look at your payment options. The IRS provides relief programs that may help, including:
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Short-term extension – Gets you an additional 120 days to pay what you owe. Great for situations where you need a little extra time to get the money together.
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Installment agreement: This lets you pay your tax bill over time in smaller amounts. You’ll still have to pay interest and fees, but they won’t be collected by force.
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Offer in compromise – Settles tax debt for less than the full amount owed. To qualify, you must prove financial hardship.
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Currently not collectible – The IRS temporarily delays collection efforts until you’re able to fully pay. Your account gets reviewed periodically.
Request Penalty Relief
Penalties get charged for filing late or not paying taxes by the deadline. However, you may qualify for penalty relief if circumstances beyond your control prevented compliance. Some common situations include:
- Medical problems or injuries
- Natural disasters like severe storms
- Death of a family member close to tax time
To request penalty relief, complete and submit IRS Form 843 with documentation supporting your reason.
Set Up A Payment Plan
Payment plans let you pay your tax bill in more manageable installments over time. The IRS offers both short-term (180 days or less) and long-term (over 180 days) plans.
To qualify, you must owe less than $100,000 for a short-term plan or less than $50,000 for a long-term plan. Interest gets charged until the balance is paid off. You can apply online through the IRS website.
Explore Personal Loan Options
Borrowing money is one potential option to cover a large tax bill, but should be carefully considered. Compare interest rates and terms from banks, credit unions, or online lenders to find the best loan for your situation.
A personal loan allows you to pay the IRS right away and avoid penalties and interest. Just be sure you can manage the loan payments along with your other expenses.
Ask The IRS For A Extension
If you absolutely cannot pay anything by the tax deadline, file an extension using IRS Form 4868. This gives you an additional 6 months (until October 16) to file your return.
However, an extension of time to file is not an extension of time to pay. You still must estimate taxes owed and pay as much as possible by April 18 to avoid penalties and interest. The extension only covers filing the return.
Consult A Tax Professional
With huge tax bills you cannot pay, getting professional help can be invaluable. A tax expert like a CPA or Enrolled Agent can review your situation and present options tailored to your circumstances.
Their experience negotiating with the IRS can often get penalties waived or reduced. They may also find tax deductions or credits you missed to help lower what you owe.
Act Sooner Rather Than Later
If you wait until the last minute and cannot pay by April 18, the IRS charges higher failure to pay penalties. Take action as soon as you realize you cannot cover your tax bill to take advantage of payment options and avoid enforced collections.
Dealing with owing taxes you cannot afford to pay causes great stress. But facing the problem head on and exploring available solutions will get you on a path to resolving the tax debt. Don’t delay – you have options and can get through this.
Long-term IRS payment plan
Also known as an installment agreement, this payment plan is likewise done directly through the IRS for taxpayers who need more than the 120-day extension to pay off their bill.
To set up a long-term payment plan, you must tell the IRS how much you can realistically pay each month. Then, the IRS either approves or denies your request. To qualify, you need to owe $50,000 or less in combined tax, penalties, and interest.
You’ll also pay interest and penalties on top of your balance, just like the short-term payment plan. You may not have to pay a setup fee for a long-term payment plan, but you may have to pay one if you use a different payment method or get more income.
Yes, you can pay your income taxes with a credit card, but it comes with a cost.
Legally, the IRS cannot accept credit cards for tax payment. So instead, the payment can be done through a third party, which then charges you a processing fee (amounting to a small percentage of your total payment).
Keep your credit card’s interest rate in mind before using it to pay off your taxes. Credit cards have higher interest rates than other ways to borrow money, so be careful not to turn one problem into another when you take out credit card debt.
On a positive note, paying with a credit card — instead of using an IRS payment plan — means avoiding the IRS penalties mentioned above. You’ll be done with the IRS, so the only fees you’ll have to pay are the third-party processing fee and any credit card interest you may have racked up.
Having repayment options is great, especially when dealing with a large, stressful tax bill. That’s why it’s important to pay as much as you can at the tax deadline, then figure out the best way to cover the remainder through the other means outlined here. Remember to be totally honest with yourself about how much time you’ll need to pay off your balance so you can find the right terms for your unique situation.
Short-term IRS payment plan
This repayment plan, offered through the IRS, gives you 120 extra days to pay off your tax bill.
However, this extension comes with a few stipulations you should know about:
- You’ll have to pay interest and other fees while you’re paying it back, so it’s better to pay it off right away than to wait the full 120 days.
- For this to work, you must owe less than $10,000 in taxes, fines, and interest.
Note: There’s no setup fee for the short-term payment plan — just the interest and penalty charges you’ll pay on top of your balance.
Got a Big Tax Bill? What to Do If You Can’t Afford to Pay Your Taxes.
FAQ
What happens if I owe the IRS and can’t pay?
Online payment plans They can apply for a payment plan at IRS. gov/paymentplan. These plans can be either short- or long-term. Short-term payment plan – The payment period is 180 days or less, and the total amount owed is less than $100,000 in combined tax, penalties and interest.
What happens if you owe the IRS over $100,000?
Key Takeaways for Taxpayers who owe over $100,000: The IRS will issue a federal tax lien. The IRS may levy (seize) bank accounts, wages, or personal and real assets. The IRS can tell the State Department to take away your passport. You will not receive any tax refunds.
What do I do if I can’t pay my taxes all at once?
If you cannot pay your total past due amount now, you can request a payment plan, and pay down your balance over time. This could potentially save you from additional penalties and interest. For more information visit our Payment Plan page.
What if I owe a tax bill but can’t pay in full?
Taxpayers struggling to meet their tax obligation may consider these payment options. Taxpayers who owe but cannot pay in full by April 18 don’t have to wait for a tax bill to set up a payment plan. They can apply for a payment plan at IRS. gov/paymentplan. These plans can be either short- or long-term.
What if I can’t pay my taxes?
What if I can’t pay my taxes? Don’t panic – you may qualify for a self-service, online payment plan (including an installment agreement) that allows you to pay off an outstanding balance over time.
What happens if you owe more taxes than you can afford?
If you cannot afford to pay a large tax bill, the IRS has several ways to collect the debt, including garnishing your paycheck, seizing your property, and damaging your credit. To avoid these consequences, here are some ways to reduce your tax bill to a manageable size or at least get more time to pay it.
What if I can’t pay my tax bill all at once?
If you can’t pay your tax bill in full at once,, consider an installment agreement with the IRS. An installment agreement lets you pay what you owe over time.
What should I do if I don’t pay my taxes?
But generally, you have three options: Get on a monthly installment agreement. Request an offer in compromise. File and don’t pay, or make a partial payment. There is no one-size-fits-all tax plan because everyone’s situation is different. You should talk to a tax professional for help.
What if I’m behind on my taxes?
This is probably the best choice if you’re behind on your taxes but know you can catch up eventually. After you file your tax return, fill out an online payment agreement application on the IRS website. Send your taxes by mail with Form 9465, which is for people who want to pay their taxes over more than one month.
