The April tax deadline is fast approaching. After filing your taxes, you found out you owe more money than you can afford to pay all at once. Now what? Take a deep breath – you have options. The IRS knows what it’s like to be broke and has programs to help taxpayers in these kinds of situations.
First and foremost, you need to file your tax return by the deadline, even if you can’t pay the full amount due The IRS charges a failure-to-file penalty if you don’t file on time, so it’s important to file your return to avoid this penalty. You can request an automatic tax filing extension, but this only gives you more time to file, not more time to pay
Once you file, pay as much as you can afford. Making even a partial payment can reduce penalties and interest. If you owe taxes but can’t pay them all at once, here are some things you can do:
Request an Installment Agreement
An installment agreement allows you to pay your tax debt in smaller more manageable payments over time. You can apply for an installment agreement online if you owe $50000 or less in combined taxes, penalties, and interest. There are two main types
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Short-term payment plan – Pay off your balance in 180 days or less. Limited to balances under $100,000.
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Long-term payment plan – Pay over a period longer than 180 days, in monthly payments. Limited to balances under $50,000.
Installment agreements charge interest and may include a setup fee. As long as you make your monthly payments on time, the IRS won’t take collection actions against you.
Submit an Offer in Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. The IRS will consider accepting an offer if you can’t pay your tax liability in full or doing so would cause financial hardship. Offers require a non-refundable application fee and payment of a non-refundable initial offer amount.
Use the IRS Offer in Compromise Pre-Qualifier tool to see if you may be able to start the process. After that, you’ll need to fill out Form 656 and send it in with proof of your finances. Based on the facts and circumstances of your case, the IRS will decide whether to accept or reject your offer.
Request a Temporary Delay
If you think you can pay your tax bill in 120 days or less, you can ask for a temporary delay in collection. Interest and penalties will continue to accrue during the delay. You must fill out Form 1127 and explain your proposed payment plan in order to make this request.
Ask About Currently Not Collectible Status
If paying your tax debt would cause serious financial hardship, you may be able to have your account placed in “currently not collectible” status. This pauses IRS collection actions, including wage garnishments and bank account levies. However, penalties and interest will continue to accrue.
To request this status, you’ll need to complete Form 433-F and provide detailed information about your monthly income, assets, and expenses. The IRS will review your financial information to determine if you qualify. Currently not collectible status doesn’t make your debt go away, and the IRS can re-evaluate your situation in the future.
File for Bankruptcy
Bankruptcy is a legal proceeding that can eliminate or reduce certain tax debts. To receive this relief, you must file bankruptcy paperwork with the appropriate federal court. This is a complex process best handled by a bankruptcy attorney. Not all tax debts can be discharged in bankruptcy.
Request Penalty Relief
If you couldn’t pay your taxes on time due to circumstances outside your control, you may be able to have penalties waived. The IRS offers penalty relief in certain situations, like natural disasters, serious illnesses, or military deployments. You’ll need to submit a request and documentation supporting your situation. Interest will still apply even if penalties are waived.
Understand IRS Interest and Penalties
It’s important to know how the IRS calculates interest and penalties on unpaid tax debts. This helps you understand how your balance can grow over time.
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Failure-to-file penalty – 5% of unpaid taxes for each month your return is late, up to 25%
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Failure-to-pay penalty – 0.5% of unpaid taxes for each month they’re late, up to 25%
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Interest – Compound daily interest applied to unpaid taxes and penalties
Penalties and interest really add up, which is why it’s critical to file on time and pay as much as you can, even if you can’t pay in full. The sooner you address your tax debt, the less it will ultimately cost you.
Take Action Quickly
If you receive an IRS notice about unpaid taxes, take prompt action. Don’t ignore the notice as this can lead to additional penalties and IRS collection actions. Contact the IRS to discuss payment options or request penalty relief. Taking the right steps can help you resolve your tax debt on affordable terms.
The bottom line is don’t panic if you owe taxes you can’t immediately pay in full. The IRS provides various payment options to help taxpayers facing financial hardship. File your return on time, pay what you can, and explore arrangements to pay over time. This can help you avoid or reduce penalties and get back into good standing with the IRS.
Pay with a personal loan
If you don’t have good credit, it may be easier to get a personal loan than a credit card with a 20% APR. Before you apply, however, compare rates and fees with what you would pay through an IRS installment plan. (Be sure to consider how long it will take to settle your tax bill. ).
If you have bad credit, Avant Personal Loans is a good choice because it works with people whose credit scores are as low as 580. Loans are capped at $35,000 and youll have 12 to 60 months to repay the loan with an APR that ranges from 9. 95% to 35. 99%.
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Annual Percentage Rate (APR)
9.95% to 35.99%
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Loan purpose
Debt consolidation, major expenses, emergency costs, home improvements
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Loan amounts
$2,000 to $35,000
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Terms
24 to 60 months
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Credit needed
Poor/Fair
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Origination fee
Administration fee up to 9.99%
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Early payoff penalty
None
- Late fee: up to $25 per late payment after 10 days of grace.
Click here to see if you prequalify for a personal loan offer.
You only need a credit score of 300 to be considered for a loan by Upstart. The online lending platform offers loans of up to $50,000, with repayment terms of between 36 and 60 months.
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Annual Percentage Rate (APR)
7.40% – 35.99%
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Loan purpose
Debt consolidation, credit card refinancing, wedding, moving or medical
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Loan amounts
$1,000 to $50,000
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Terms
36 and 60 months
- Must have a FICO or Vantage score of 300 (but will accept applicants whose credit history is so bad they don’t have a score).
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Origination fee
0% to 12% of the target amount
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Early payoff penalty
None
- The late fee is the greater of 5% of the monthly past-due amount or $15.
Does the IRS have a hardship program?
The IRS offers something similar to a hardship program called an offer in compromise. It lets you settle your tax debt for less than you owe. It used to be called the Fresh Start program.
What happens if you can’t pay your tax bill?
FAQ
What happens if I owe the IRS and can’t pay?
Payment options: The IRS may be able to help you by giving you a short-term extension to pay (paid in 120 days or less), an installment plan, an offer in compromise, or by temporarily stopping collection by saying that they can’t get the money from you until you can pay.
What happens if I can’t make my tax payment?
If I don’t pay on time, what will happen? If we don’t hear from you, we will get in touch with you in one or more of these ways: in writing, by phone, or in person. If you do not work with us to pay the amount due, we will take collection action. This may result in additional fees.
What is the minimum payment the IRS will accept?
What is the minimum monthly payment on an IRS installment agreement?Tax debtMin. monthly payment$10,000 or lessSufficient amount to pay off your debt in less than 3 years$10,000 to $25,000Total debt divided by 72$25,000 to $50,000Total debt divided by 72More than $50,000No set minimum.
What do I do if I can’t afford to pay my taxes?
If you find that you cannot pay the full amount by the filing deadline, you should file your return and pay as much as you can by the due date. To see if you qualify for an installment payment plan, attach a Form 9465, “Installment Agreement Request,” to the front of your tax return.
What if I can’t pay my taxes?
If you can’t pay your taxes, don’t worry. You may be able to get a self-service, online payment plan (including an installment agreement) that lets you pay off the balance over time.
What if I can’t pay my tax bill in full?
This guide is also available in Welsh (Cymraeg). If you cannot pay your tax bill in full, you may be able to set up a payment plan to pay it in instalments. This is called a ‘Time to Pay’ arrangement. You will not be able to set up a payment plan if HMRC does not think you will keep up with the repayments.
What happens if I fail to pay my tax bill?
And on top of that, the IRS will hit you with a failure-to-pay penalty of 0.5% each month—with a maximum penalty of 25% of your tax bill—until your tax bill is paid in full. 2 That’s why it’s so important to pay as much as you can ASAP and set up a payment plan for the rest (we’ll talk about payment plan options below).
Should I make a payment if I owe a tax bill?
Making a payment, even a partial payment, will help limit penalty and interest charges. 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.
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. Everyone’s tax situation is different, and there is no one-size-fits-all strategy, so you should consult a tax professional for advice.
What happens if you don’t pay your taxes in full?
Pay your tax debt in full! The IRS might also send your back taxes to a private collections agency, and they’ll start bugging you to pay up too.
