What To Do If You Can’t Pay Your Taxes

The end of tax filing extensions is quickly coming. What do you do if you can’t pay the IRS the amount of money you owe? In this situation, it is better if you still file your return by the due date and pay as much as you can. However, there are other steps that may help also.

Pay Your Taxes With Credit Cards 

If you don’t have available money to pay your due amount to the IRS, you can charge your taxes on your American Express, MasterCard, Visa or Discover cards.  Doing this, will help you by giving you an extra month to come up with the money and pay no interest.  You can also use a credit card that will give you no interest for 12 months or more.  This will give you a great opportunity to be able to pay everything you owe without interest. 

If a credit card is out of the question, you might be able to pay any remaining balance over time in monthly installments by requesting a tax installment agreement.  If you're totally wiped out and the future looks grim, you might also want to consider about getting the tax amount reduced with the Offer in Compromise program. 

To apply for a tax installment payment plan, fill out and attach Form 9465 to the front of your tax return.  You can also apply for an online payment agreement which you can find on the IRS website.  The IRS has streamlined the approval process if your total taxes (not counting interest, penalties or other additions) don't exceed $25,000 and can be paid in full in a period of five years or less.  Make sure to show the amount of your proposed monthly payment and your desired date to make your payment each month.  Be absolutely sure you can make the payments. 

If you do not pay the amount owed in full within 120 days, the IRS will charge you a fee for setting up an installment agreement.  The fee can very: is $52 for a direct debit agreement, $43 if your income is lower than a certain level, or $105 for a standard agreement or a payroll deduction agreement.   You will also be charged interest plus a late payment penalty on the unpaid taxes.  The late payment penalty is typically one-half of one percent per month or part of a month of your unpaid tax.  The penalty rate is reduced to one-quarter of one percent for any month an Installment Agreement is in effect if you filed your return by the due date (including extensions).  The maximum failure to pay penalty is 25% of the tax paid late. 

If you don't file your return by the due date (including extensions), you might have to pay a penalty for filing taxes late.  The penalty for failing to file taxes and failing to pay taxes on time is typically 5% of the unpaid tax for every month or part of a month that your return is late.  The maximum penalty for failure to file tax return and failure to pay promptly is 25 percent of your unpaid tax. 

In Closing 

The IRS wants you in the system, even if you're broke.  Whatever you do, file your tax return in a timely manner.  Once filed, the IRS will work with you on payment issues.  Don't be stressed.  Take into account that you’re not the only one with this type of problem, as there are millions of people in this similar situation.