What To Do If You Can't Pay Your Taxes

Photographed by Raven Ishak.
By Julia Sonenshein

Tax Day was last week, as most of us are quite aware. Some of us are getting ready to hand over a sizable sum to our best friend, the IRS. But, what happens if you simply don’t have the money to pay your tax bill? First and foremost, file anyway. Your bill won’t even come for another month, so if it’s an issue of waiting for a paycheck to come through, take a deep breath. If, on the other hand, you are going to need more than 30 days, you’ve got other options.

1. Apply For An Extension

If you can get the money together in that time, apply for the 120-day extension. There’s no application fee, but you’ll have to pay interest and penalties (at a lower rate than an installment plan, and far less than what you’d be charged if you simply don’t pay at all).

2. Set Up An Installment Plan

You can also break up your payment into installments. When you apply, you will be charged a user fee of $120, or $52 if you set up automatic transfers from a debit account. It’s up to you to specify how much you want to pay each month, and to pick a day on which to pay. Penalties and interest will continue to accrue until you’ve paid the whole amount. 

3. Negotiate A Compromise

If an extension or installments won’t work for you, you can apply for an offer in compromise, so you can settle your tax bill for less than what you actually owe. Offers in compromise are awarded based on your ability to pay, your income, your expenses, or your asset equity, and they're essentially negotiations: You’re telling the IRS that you’re more likely to pay in full — and promptly — if you can pay less. You’ll have to pay a $186 application fee.

4. Use A Credit Card
You can use a credit card to pay your tax bill, but with some hefty caveats. Keep in mind that you’ll have to pay a fee ranging from 1.87 to 2.35% on your tax total. Paying with a credit card makes the most sense if your bill won’t max out your card and if you can make regular payments. Otherwise, you could screw your credit score.

More From Daily Worth:
What You Need Before You File Your Taxes
8 Basic Money Lessons Everyone Should Know
11 Basic Tax Terms You Should Know
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