Can’t Pay Your Tax Bill? Here’s What to Do

What should you do if you can’t pay the IRS? First, don’t let this stop you from filing your return, as there are penalties for failure to do so. As for the payment dilemma, you do have options if you can’t come up with the entire amount by the due date.

Put the bill on your credit card

While it’s rarely a good idea to cancel one debt by incurring another, using a credit card is a viable option if your inability to pay is deadline-related. The IRS accepts all major credit cards and won’t charge a fee for paying your taxes this way, although the processing companies will impose a percentage of up to 2.35% of the bill. Because you are limited to two credit card payments per taxation year (if you filed as an individual), pay as much as you can up front.

Make an installment agreement

If you owe $50,000 or less in combined tax, penalties, and interest, and all your returns have been filed, you can apply to pay the IRS in monthly installments. If you go this route, bear in mind that there is a fee to apply for the installment plan, and the IRS will charge interest during the agreement. It may also seize any refund you receive and file a federal tax lien until the amount due has been paid in full.

If you owe more than $50,000 or your taxes are not for individual income, the rules are different and you will need to check with the IRS to see what your options are.

Try making an Offer in Compromise (OIC)

With an OIC, you settle your tax debt for less than what you actually owe. Generally, the IRS will only agree to this arrangement if they believe they will not be able to collect the full amount within a reasonable length of time. As with the installment agreement, you must be current with your filing requirements. You must also not be in an open bankruptcy proceeding.

To apply for the OIC, you’ll have to pay a nonrefundable fee of $186 and choose one of two payment options:

  • Lump sum: Submit an initial payment of 20% of the amount owed when you apply. If the IRS accepts, you pay the remaining balance of the your offer in five payments or less.
  • Periodic payment: Submit an initial payment when you apply, and keep paying the proposed balance in monthly installments until you hear from the IRS. If they accept, you continue to remit monthly until everything is paid off.

As with the installment agreement, you must be current with all filing and payment requirements and you are not eligible if you are currently in an open bankruptcy proceeding. There’s a non-refundable fee of $186 to apply for the OIC.

Request additional time

If your circumstances allow you to qualify, you may be granted extra time to pay your bill in full.

If you become insolvent or circumstances beyond your control (for example, injury or job loss) leave you unable to pay your tax bill, contact the IRS. They are usually willing to work with people in these situations. Whatever you do – don’t ignore outstanding bills! They’ll only get bigger and in most cases you have options.

If you’ve got questions about your tax situation, we can help. Please contact us today to learn more!

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Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.