It is quickly approaching the most important time of the year—tax season. It is important to file no matter whether you expect big returns, or large deficits.
If you cannot afford to finance your tax bill this season, just know that accomplishing the task of paying off your taxes is attainable. You are not out of options—it will require some tough budgeting and strategic financing, but it can be done.
Discover your options below to see options on how you can pay off your tax bill.
- File Anyway. You may feel hesitant to file if you know you will owe, but it cannot be stressed enough—file anyway. Failure to file will be grounds for penalties and the potential to owe more in the future due to interest. Do not make the mistake of owing back taxes. Having this burden will only make you accrue more interest and penalties.
- Pay What You Can. Even if it is a small amount, be sure to pay as much as you possibly can now. It will give you some peace of mind that you can accomplish this task, and you can give the IRS some confidence that you will take care of it.
- Respond to Your IRS Notice. You must always respond to an IRS notice to avoid penalties. If you do not respond you may be liable to pay in full, or worse, submitted to a tax lien.
- Delay Payment. If you qualify, the IRS will allow an extension of up to 120 days. The request itself has no fee, however you will continue to accrue interest and applicable penalties.
- Delay Due to Financial Hardship. If you are already unable to cover your living expenses, the IRS may wait for you to get on your feet. However, just like with the delay of payment listed above, you are still liable for building interest and penalties. You could possibly even get a tax lien imposed on your assets.
- Pay in Installments. Request an installment agreement if you cannot pay in full. You will use the Online Payment Agreement Application or complete a Form 9465. Apply for an online payment agreement to see if you qualify. Keep in mind that in order to be eligible you cannot be in open bankruptcy. If you qualify, there are several options to make monthly payments, such as direct debit from your bank account, payroll deduction from your employer, check or money order, credit card payment via phone or internet, or through a system called the Electronic Federal Tax Payment System. The IRS will charge a one-time installment agreement fee of $120 when you decide to pay with any of these systems. However, there are some allowances. If you choose direct debit, the fee is $52. In addition, if you meet the poverty guidelines of the Department of Health and Human Services, your fee will be reduced to $43. You will have to specify the amount you can pay, and what day you can pay.
- Consider an Offer in Compromise. An offer in compromise, or OIC, is an agreement of negotiation that the taxpayer will pay a reduced amount. In order to qualify, all filing and payment requirements must be up to date. Just like with the other methods, open bankruptcy will render you ineligible for this option.
- Use Your Credit. It may be a form of relief to owe your credit card company rather than the IRS. If you are in good standing with your credit, and cannot use debit, consider paying off your tax debt with a credit card. The interest you pay back on the credit card will probably be lower than that of the IRS fee, and additionally, you will not have the penalties associated with being in debt to the IRS. Just remember that this option is only a good choice if you will be able to pay back the credit card reliably, as replacing one unpayable form of debt with another is not a good option.