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It feels like tax season is always just around the corner, and as such, many people find themselves experiencing endless financial stress. If you know you’re going to owe the government or know you’ll be unable to pay what you owe, file your tax return anyway to avoid the penalties for not filing on time.
Once you’ve done this, consider the options below if you know you can’t pay your tax bill on time (or at all).
1. Enter into an Installment Plan with the IRS
If your ability to pay your tax bill hinges on time, the IRS will agree to an installment plan that fits your budget. Using an income tax calculator ahead of time can help you determine how much tax you’ll owe, or you can simply complete your taxes and then fill out the appropriate forms for the installment agreement.
Please note that while you’re paying your tax bill in installments, the IRS will continue to charge you interest and penalties for the late payment, so the sooner you can pay it off the better.
2. Pay Your Tax Bill with a Credit Card
While it’s usually not a good idea to replace one type of debt with another, paying your tax bill with a credit card makes sense if you just need a short extension to pay it off. Paying your tax bill by credit card enables you to pay it on time while giving you up to a month extra to come up with the money to pay the resulting credit card bill when it comes.
3. Refinance Your Home to Pay Your Tax Bill
If you have equity built up in your home, you may want to consider refinancing it to pay your outstanding tax bill. In fact, the IRS will likely suggest this option if it’s possible. Of course, if you’re already behind on your mortgage or are struggling to make your monthly payments, this option may not be for you.
4. Submit an Offer in Compromise (OIC)
An Offer in Compromise asks the IRS to accept a smaller amount than what you actually owe. This offer is based on your ability to pay, your income, your assets, and your expenses. You must have a really good reason for the IRS to accept this offer as most of them are rejected.
To qualify for an OIC, you must be in good standing (no outstanding, unpaid tax debt) and be current in filing your tax returns, and you need to pay a $186 non-refundable application fee. To find out if you qualify for an OIC, check out the Prequalification Tool on the IRS website.
5. What to Do if You Can’t Pay at All
Unemployment or disability may make it difficult or impossible to pay your tax bill. However, if you find yourself in such a situation, don’t ignore your tax obligations. Instead, contact the IRS. They are willing to work with you to satisfy your tax debt. By talking to an IRS agent about your situation, you may be able to get an extension or qualify for a payment plan that suits your budget.
Whatever you do, don’t ignore your tax obligations. The IRS cracks down on past due bills, enlisting private tax collectors and seizing passports of those who fail to pay on time. If you find you’re not able to pay your tax bill, follow these tips, and above all else, work with the IRS to reach a satisfactory outcome.
