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What to Do if You Can’t Pay Your Tax Bill


Tax season is upon us, and if you’re already worried about paying your tax bill, you’re not alone. If you know that you won’t be able to afford all that you owe the government this April, there are a few steps you can take both before and after the date passes. Read on and find which payment route will be most useful for your purposes.

Don’t Avoid Filing

Even if you know you won’t be able to pay your taxes, you still need to file them—this year’s deadline falls on Monday, April 18, 2016. That may sound like a lifetime away right now, but it will be upon us before you know it. The IRS doesn’t take kindly to late filers—they can charge a penalty fee up to a maximum of 25% for the total cost of your debt if it isn’t filed within five months; this doesn’t even include the interest that your debt will accrue over time. Filing by the deadline will help you avoid the penalty fee, even if you can’t pay what you owe, and it will also help you stay on the IRS’s good side.

Consider Using a Credit Card

While it’s not always advisable to pay off one debt by creating another, using a credit card to pay off your taxes might be the lesser of two evils. The interest rate on your credit card may well be lower than the penalty that the IRS will charge on your debt—a half a percent per month, to a maximum of 25% after 50 months. Even making just a partial payment with your credit card can help you avoid devastating IRS interest costs. There is a fee to use a credit card with one of the IRS-approved processors, so be sure to do the math—add your card interest rate and the processing rate together and determine if that will cost you less than the interest rate charged by the IRS.

Request an Installment Agreement

If you can’t pay it all right now, ask the IRS to consider giving you an installment agreement. If your debt is less than $50,000 (combining taxes, interest, and any penalties), you’re likely to secure an installment payment plan simply by asking online. The most lenient of these plans will give you up to 72 months to pay back what you owe. This is only applicable to those taxpayers who are up to date on all past due tax returns. If your debt is above this threshold, you’ll need to negotiate, and a tax professional would be able to help increase your likelihood of IRS acceptance. Installment plans aren’t without their caveats—penalty fees and interest will still accrue on your balance as long as you’re making payments.

Resolve Debt with Offer in Compromise

If you have filed but can’t pay, consider an offer in compromise. This is a “something is better than nothing” situation, at least for the IRS. If they see that you will never be able to pay the debt owed, or that it is highly unlikely, they may compromise with you and reduce your debt to something more manageable. It’s rare that an OIC is accepted, and you must convince the IRS that you can’t pay the full amount, you suspect the amount of your tax liability is incorrect, or that paying your debt would cause unwarranted economic hardship. These offers can be very difficult to apply for, as there are many stipulations that you must meet before the IRS will accept an offer. If you do choose to try this route to settle your debts, use the help of a professional from a site like Community Tax to ensure the best chance of success.

Ask for an Extension

Undue hardship extensions are also rare, but they do happen. If the IRS deems that paying off your debt would cause an undue financial struggle, they will consider giving you an extra six months to pay your debt. Interest will still accrue, but the lack of penalty fees is an attractive reprieve. Be prepared to argue your case, as the IRS will need proof that immediate payments would cause a considerable financial loss.

Do your best to amass the funds you’ll need to pay off your taxes, but remember, even if you don’t come up with the total amount, you still need to file and utilize these resources to make a financial plan that will leave you debt-free. Happy tax season!


  1. My in-laws had to take an installment plan because my FIL was an idiot about it. When he cashed in his profit sharing early, they warned him that he’d have to pay 10% in early withdrawal, but he hoped it would just be covered by the $10k they took out to cover taxes before giving him the money in the first place. Which I could’ve told him wasn’t correct.

    Shortly after he cashed in that fund, he lost the new job he’d switched to. So by the time the money was due, they were living on his unemployment and my MIL’s part-time work, since she’s disabled. There was a lot of friction between them for that choice of his. (His account was separate from hers, so she couldn’t just make the payment herself. She just tried to nag him into it.)

  2. Tax time is here already and we can not wait to see how we come out! Hope we do not owe too much or can not pay, but if we get into trouble the article will help! Very nice easy to read blog you have…

    • I try and estimate my taxes as best as possible…but between my wife and I, fluctuating online income, and multiple “day jobs” between the both of us, it’s nearly impossible to keep up with taxes owed

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