Getting a huge tax bill that you cannot afford to pay can be an extremely stressful and overwhelming experience With the April tax deadline fast approaching, many Americans are finding themselves in this difficult position. Fortunately, there are options available if you owe more taxes than you can pay by the filing deadline
Evaluate Your Tax Bill
The first step is to thoroughly review your tax return and make absolutely sure the amount owed is accurate. Double check your math, especially for things like deductions, credits, income amounts, and tax rates. Sometimes errors can occur, so verify the tax bill amount is correct.
If you used a tax preparer, contact them to discuss any questions or concerns about the tax amount due. They should be able to walk through the details with you.
Consider Payment Options
If after carefully reviewing your tax return the amount owed is correct, look at payment options. The IRS provides relief programs that may help, including:
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Short-term extension – Gets you an additional 120 days to pay what you owe. Great for situations where you need a little extra time to get the money together.
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Installment agreement – Allows you to pay your tax bill in smaller chunks over time. You’ll still owe interest and penalties, but it prevents enforced collections.
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Offer in compromise – Settles tax debt for less than the full amount owed. To qualify, you must prove financial hardship.
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Currently not collectible – The IRS temporarily delays collection efforts until you’re able to fully pay. Your account gets reviewed periodically.
Request Penalty Relief
Penalties get charged for filing late or not paying taxes by the deadline. However, you may qualify for penalty relief if circumstances beyond your control prevented compliance. Some common situations include:
- Medical problems or injuries
- Natural disasters like severe storms
- Death of a family member close to tax time
To request penalty relief, complete and submit IRS Form 843 with documentation supporting your reason.
Set Up A Payment Plan
Payment plans let you pay your tax bill in more manageable installments over time. The IRS offers both short-term (180 days or less) and long-term (over 180 days) plans.
To qualify, you must owe less than $100,000 for a short-term plan or less than $50,000 for a long-term plan. Interest gets charged until the balance is paid off. You can apply online through the IRS website.
Explore Personal Loan Options
Borrowing money is one potential option to cover a large tax bill, but should be carefully considered. Compare interest rates and terms from banks, credit unions, or online lenders to find the best loan for your situation.
A personal loan allows you to pay the IRS right away and avoid penalties and interest. Just be sure you can manage the loan payments along with your other expenses.
Ask The IRS For A Extension
If you absolutely cannot pay anything by the tax deadline, file an extension using IRS Form 4868. This gives you an additional 6 months (until October 16) to file your return.
However, an extension of time to file is not an extension of time to pay. You still must estimate taxes owed and pay as much as possible by April 18 to avoid penalties and interest. The extension only covers filing the return.
Consult A Tax Professional
With huge tax bills you cannot pay, getting professional help can be invaluable. A tax expert like a CPA or Enrolled Agent can review your situation and present options tailored to your circumstances.
Their experience negotiating with the IRS can often get penalties waived or reduced. They may also find tax deductions or credits you missed to help lower what you owe.
Act Sooner Rather Than Later
If you wait until the last minute and cannot pay by April 18, the IRS charges higher failure to pay penalties. Take action as soon as you realize you cannot cover your tax bill to take advantage of payment options and avoid enforced collections.
Dealing with owing taxes you cannot afford to pay causes great stress. But facing the problem head on and exploring available solutions will get you on a path to resolving the tax debt. Don’t delay – you have options and can get through this.
Got a Big Tax Bill? What to Do If You Can’t Afford to Pay Your Taxes.
FAQ
What happens if I owe the IRS and can’t pay?
What happens if you owe the IRS over $100,000?
What do I do if I can’t pay my taxes all at once?
What if I owe a tax bill but can’t pay in full?
Taxpayers struggling to meet their tax obligation may consider these payment options. Taxpayers who owe but cannot pay in full by April 18 don’t have to wait for a tax bill to set up a payment plan. They can apply for a payment plan at IRS.gov/paymentplan. These plans can be either short- or long-term.
What if I can’t pay my taxes?
What if I can’t pay my taxes? Don’t panic – you may qualify for a self-service, online payment plan (including an installment agreement) that allows you to pay off an outstanding balance over time.
What happens if you owe more taxes than you can afford?
If you cannot afford to pay a large tax bill, the IRS has several ways to collect the debt, including garnishing your paycheck, seizing your property, and damaging your credit. To avoid these consequences, here are some ways to reduce your tax bill to a manageable size or at least get more time to pay it.
What if I can’t pay my tax bill all at once?
If you can’t pay your tax bill in full at once,, consider an installment agreement with the IRS. An installment agreement lets you pay what you owe over time.
What should I do if I don’t pay my taxes?
But generally, you have three options: Get on a monthly installment agreement. Request an offer in compromise. File and don’t pay, or make a partial payment. Everyone’s tax situation is different, and there is no one-size-fits-all strategy, so you should consult a tax professional for advice.
What if I’m behind on my taxes?
If you’re behind on your taxes but know you can catch up eventually, this is probably your most appealing option. After you file your tax return, fill out an online payment agreement application on the IRS website. You can also mail in your taxes and include Form 9465, which is used for taxpayers who are interested in a monthly installment plan.
