Doing your taxes is unpleasant enough, but it can turn into a nightmare if you wind up with an unexpected bill. If you’re lucky, you can cover what you owe out of your bank account and mail in a check along with your return. But this isn’t an option for everyone.
Don’t panic, though. There are ways to get the IRS off your back that don’t require a large, upfront payment. Here are some of your best options — and one you definitely want to avoid.
Do nothing
Doing nothing is the worst thing you can do in the face of a tax bill. The IRS will charge you a failure-to-pay penalty that’s worth 0.5% of the tax owed every month it remains unpaid. This maxes out at 25% of your unpaid taxes. You could also face a failure-to-file penalty worth 5% of your unpaid taxes, up to a maximum of 25% of taxes owed, if you don’t file your return when you should have.
The IRS could also come after you for tax evasion, which could result in hefty fines and even prison time. So you definitely don’t want to just ignore your tax situation. File your tax return, even if you can’t afford the bill right now. Then, reach out to the IRS to work out a payment agreement.
How to pay the IRS when you don’t have the money right now
If you don’t have the cash on hand to cover your tax bill, you have a few options, including the following.
Short-term repayment plans
Short-term repayment plans give you up to 180 days to pay your tax bill in full. There’s no fee to set one of these up, but your balance will continue to accrue failure to pay penalties and interest during this time.
To qualify for one of these plans, you must owe less than $100,000 in combined taxes, penalties, and interest. You can apply using the IRS’s online payment agreement form.
Long-term payment plans
Long-term payment plans give you more than 180 days to pay back what you owe, but they require you to pay in monthly installments. You can do this via:
- Direct debit from your bank account
- Payroll deduction
- Debit card
- Credit card
- Check
- Cash
There is a fee for this unless you qualify for a low-income exemption. And again, your balance will still accrue penalties. But it’s a solid option to consider if you’ve filed your return and owe less than $50,000. You can choose your payment due date and how much you can afford to pay each month. Those interested can apply using the same online form linked above.
Offer in compromise
An offer in compromise is where you tell the IRS what you can afford to pay toward your tax bill, even if it’s not the entire amount. The IRS will consider your offer and, if it agrees, you make your payment, either as a lump sum or monthly installments, and the IRA forgives the remainder of your tax debt. However, it doesn’t accept all offers. It will consider your income, assets, expenses, and ability to pay.
To qualify, you must have filed all required tax returns and made all estimated tax payments if self-employed. You also cannot be in an open bankruptcy proceeding. The Form 656-B booklet can guide you through how to make an offer in compromise and what to do if yours isn’t approved.
When in doubt, it’s best to contact the IRS or speak with a tax professional to determine what your best option is. Don’t wait. The longer you do, the more likely it is you’ll encounter costly penalties.
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