What If I Can’t Pay My Taxes?
If you can’t pay your taxes, it’s okay! In fact, about 5 million taxpayers each year need a payment alternative, leaving them wondering what happens if they pay their taxes late. The four alternatives are:
- An extension to pay: You can ask the IRS for up to 120 days to pay your tax bill.
- Payment plans: If you’re wondering, “Do I have to pay my taxes all at once?”, the answer is no — with a payment plan, you can spread out your IRS payments. There are several types of payment plans (e.g. installment agreements), depending on your specific situation. They range from simple, streamlined agreements that can be set up online, to more complicated agreements that require you to submit documents showing your financial status.
- Currently not collectible status: If you can prove financial hardship – meaning you can’t pay the IRS right now – the IRS won’t ask you to pay until your circumstances have improved. So, if you can’t pay your taxes,you might not have to pay until you’re able to.
- Offer in compromise (OIC): This is a settlement of your unpaid taxes for less than the amount you owe – if you qualify. Taxpayers commonly use an OIC when they have few or no assets and have trouble paying their necessary living expenses.
The good news is, you can get one of these payment alternatives if you qualify and you contact the IRS to request it. More good news: The interest rate is currently only 3% on payment plans.
Whatever you do, don’t just ignore the taxes you owe. If you don’t make arrangements with the IRS to use one of the options listed above, the IRS can take money out of your wages (wage garnishing) or your bank account (levying a bank account), which can put you in a worse spot. The IRS can also issue federal tax liens that can destroy your credit and make it hard to sell property or obtain a loan.
Do I Have To Pay My Taxes All at Once?
No, you don’t. If you can pay your taxes, but just not quite at the tax due date, here’s what you should do.
File your return and pay whatever you can. The IRS will bill you for the rest. You’ll owe interest on the balance, and you might owe a late payment penalty.
If you owe $50,000 or less in combined taxes, interest, and penalties, you can request an installment agreement. To do so, complete an online payment agreement.
You can also:
- File Form 9465: Installment Agreement Request to set up a payment plan for your balance due.
- Charge your balance due to your:
- American Express
The moral of the story: Owing and not being able to pay a tax balance isn’t fun, but it’s only a problem if you don’t take action. If you have to pay your taxes late or if you can’t pay your taxes, you might still be able to work out something with the IRS.
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