It’s a stressful situation many taxpayers face – you’ve completed your tax return only to find out that you owe more than you can afford to pay. The April tax deadline is fast approaching and you don’t have the money to cover what you owe What do you do?
First of all, don’t panic. You have options. The IRS understands that taxpayers sometimes face financial difficulties that make it impossible to pay their tax bill in full. They offer several payment solutions to help people in this situation meet their tax obligations without undue hardship.
File On Time, Even If You Can’t Pay
It’s critical that you file your return by the April deadline even if you can’t pay the full amount due. Filing on time prevents you from incurring a failure-to-file penalty which is typically 5% of the unpaid tax for each month your return is late up to 25%.
You can request a six-month extension to file your return, but this extension is for filing only – not payment. Your full tax payment is still due by April. The only exception is for victims of federally-declared disasters, who get until October to file and pay.
Go ahead and file your return, reporting your full tax liability. Pay as much as you can with the return, even if it’s not the full amount. This will minimize any penalties and interest.
Pay As Much As You Can Now
Try to pay as much of your tax bill as possible upfront, even if you can’t pay it all. The more you pay now, the less interest and penalties you will accrue. Options for making a partial payment include:
- Direct debit from your bank account
- Credit card payment
- Personal loan to cover the tax bill
- Borrowing from friends/family
Every bit helps limit fees and interest down the road.
Explore Payment Plans
The IRS offers payment plans to give you more time to pay your tax bill in full. The two main options are:
Short-term plan – Pay your balance due over 180 days or less. Total owed must be under $100k.
Long-term plan – Pay over a timeframe longer than 180 days, through affordable monthly payments. Total owed must be under $50k.
You can apply for a payment plan through the IRS website as soon as you know you have a balance due, even before you formally file your return. Payment plans allow you to avoid harsh collection actions as long as you stick to the agreed schedule.
Request an Offer in Compromise
If you have a large tax bill you truly can’t pay in a reasonable timeframe, you may qualify for an offer in compromise. This allows you to settle your tax debt for less than the full amount owed based on your unique financial situation.
To be eligible, you must demonstrate that paying your full liability would cause excessive financial hardship. The IRS looks at factors like income, expenses, assets and overall ability to pay.
You’ll need to complete detailed financial forms for them to make a determination. Offers in compromise provide relief if you qualify, but the process takes time.
Penalty Relief May Be Available
If you failed to pay on time due to circumstances outside your control, you may qualify for penalty relief on your tax bill. The IRS may waive penalties if you can show reasonable cause, such as serious illness, bad tax advice or inability to obtain records. This provides another avenue to reduce what you owe.
Pay Careful Attention to IRS Notices
If you don’t pay your tax bill in full with your return, you can expect to receive notices from the IRS requesting payment. It’s important not to ignore these notices or the situation will escalate. Call the number provided to discuss payment options or penalty abatement.
The key is to be proactive. File on time, pay what you can, and promptly respond to IRS notices. If you can’t afford your tax bill, take advantage of one of the payment solutions offered by the IRS. They provide various options to help taxpayers meet their obligations while avoiding unnecessary fees and aggressive collection actions.
Pay with a personal loan
If you dont have great credit, a personal loan may be easier to get approval for than a 0% APR credit card. 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.)
Avant Personal Loans is a great option if you have poor credit, since it accepts borrowers with credit scores 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
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Late fee
Up to $25 per late payment after 10-day grace period
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
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Credit needed
FICO or Vantage score of 300 (but will accept applicants whose credit history is so insufficient they dont have a credit score)
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Origination fee
0% to 12% of the target amount
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Early payoff penalty
None
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Late fee
The greater of 5% of 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. Previously called the Fresh Start program, it allows you to settle your tax debt for less than you owe.
What happens if you can’t pay your tax bill?
FAQ
What happens if I owe the IRS and can’t pay?
What happens if I can’t make my tax payment?
What is the minimum payment the IRS will accept?
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Tax debt
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Min. monthly payment
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$10,000 or less
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Sufficient amount to pay off your debt in less than 3 years
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$10,000 to $25,000
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Total debt divided by 72
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$25,000 to $50,000
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Total debt divided by 72
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More than $50,000
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No set minimum
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What do I do if I can’t afford to pay my taxes?
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 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.