Many Americans receive a tax refund from the IRS, but some taxpayers find themselves owing money. In cases where the amount due is too hefty to pay all at once, you have options. In this blog, we’ll explore five steps to take if you find yourself unable to pay your tax bill.
How long do I have to pay my taxes?
Taxes are generally due each year on April 15, known as Tax Day. If you owe taxes, paying what you can by this deadline is important to avoid late penalties, as failure to do so can result in additional fees on any remaining balance. There is a difference between filing your tax return and paying your taxes; filing involves submitting the necessary paperwork. This step is necessary regardless of whether you owe taxes or expect a refund, and while you can file your return on time, you still must pay any balance by Tax Day.
If you find yourself needing more time to file, you can request an extension, which gives a six-month extension to complete your return. However, this extension is only for filing your return and does not extend the payment deadline. You are still responsible for paying any taxes due by the original April 15 deadline to avoid penalties.
I can’t pay my taxes by the deadline. What should I do?
If you find yourself in a situation where you can’t pay your taxes on time, don’t worry! There are steps you can take to minimize any penalties or late fees. File your return on time and pay as much as you can. For more flexibility, consider an IRS payment plan or an offer in compromise to reduce your debt. You can also request a temporary delay in collections for some relief. Continuing reading to dive deep into each of these steps.
1. File your return by the deadline
Filing your tax return on time is important, even if you can’t immediately pay what you owe. It keeps you from racking up unnecessary penalties and interest, which can add up if you miss the deadline.
2. Pay as much of your tax bill as you can
If you are able to, pay as much as you can before April 15. Paying as much as you can when you owe taxes helps reduce the overall amount of interest and penalties that the IRS may charge on your overall balance. The longer your tax debt remains unpaid, the more it accumulates due to these additional costs. While the IRS does not have a specific minimum for tax payments, pay as much as you can afford.
3. Apply for an IRS payment plan
To apply for an online payment plan or request an installment agreement with the IRS, use the IRS’s Online Payment Agreement tool. If you find that you’re ineligible for an online plan, you can still apply by mail or phone. If you’ve previously registered for an IRS online account, you can log in with that. If not, you’ll need to create an account, which requires a valid email address, photo identification, and your Social Security number.
Once logged in, fill out the required information to submit your application for a payment plan. Both online payment plans and installment agreements are available through the same tool, but there are some differences. Online payment plans are typically intended for smaller amounts owed and those who can pay off their tax liability within 120 days. Meanwhile, installment agreements are for those who owe larger balances and need a longer time frame to pay.
To get either of these options set up, applying online usually results in quicker approval, with most receiving confirmation almost immediately. If you apply by mail or phone, expect a response that could take several weeks.
4. Request an offer in compromise from the IRS
You can request an offer in compromise (OIC) from the IRS, which allows you to settle your tax debt for less than the total amount owed. To apply, you must complete and submit Form 656, along with the required payment and supporting documents to demonstrate your financial situation. The IRS evaluates your income, expenses, payment capability, and other considerations. However, getting approval for an OIC is quite difficult; in fact, recent IRS statistics show that only approximately one-third of applications submitted in 2022 were approved.
5. Ask the IRS to temporarily delay collections
In some cases, you can directly request a delay from the IRS by explaining your tax situation and providing documentation of your financial difficulty. While this option isn’t guaranteed, the IRS may consider your request on a case-by-case basis.
What happens if you don’t pay taxes?
If you fail to pay your tax bill by Tax Day, you will begin to incur penalties and fees starting the day after you fail to pay.
Some of the more serious consequences include:
- A federal tax lien can be filed against your property.
- Your salary/accounts can be seized through a tax levy.
- You can be served a summons asking you to provide more information.
The IRS offers penalty relief options such as First Time Penalty Abatement for those with a clean history and reasonable cause relief for those who faced unavoidable circumstances. Penalty relief can be requested if you meet the criteria.
Is a state tax payment plan available?
Many states offer tax payment plans to help manage tax liabilities if you can’t pay your state taxes. These plans allow you to break down your total tax bill into monthly payments. Each state has specific guidelines, including interest rates and payment durations, so check with your state’s Department of Revenue to set up a plan that best suits your tax situation.
Consider tax assistance resources
If your tax situation is complex, there are resources that can help. The Volunteers in Income Tax Assistance (VITA) program offers free tax help to individuals who typically earn $60,000 or less, as well as persons with disabilities and limited English-speaking taxpayers. Additionally, the IRS Taxpayer Advocate Service (TAS) is an independent organization within the IRS that aids taxpayers in resolving problems and offers support for those experiencing hardships.
Many communities also have Low-Income Taxpayer Clinics (LITCs), which offer free or low-cost assistance to individuals needing help with tax disputes, such as audits or collections. The Tax Counseling for the Elderly (TCE) program provides additional support specifically for individuals aged 60 and older.
State tax agencies often mirror these services, offering assistance for state-specific tax issues, payment plans, and sometimes tax relief programs.
