What to do if You Can’t Pay Your Taxes

If you’ve gone over and over your tax form, you’ve squeezed out all of the deductions that you can, and you still can’t believe the number that showed up on the “Amount You Owe” line, don’t panic. All is not lost. The first thing to do is not to ignore the situation; go ahead and file your tax return on time. This in itself can alleviate some penalties. If you don’t have the money you need to pay the IRS, here are several suggestions to help get you through.

If you don’t have the full amount due at filing time, simply pay what you can and pay the rest in a few weeks or months. A partial payment will ease some of the interest and penalties that you’ll ultimately owe. In about 45 days, the IRS will send you an invoice for the remaining amount due. If you can pay that balance, do so. If you can’t, pay what you can afford again. The IRS will go through two or three of these billing cycles before they contact you about a more formal payment schedule. By that time, you’ll hopefully have paid the full amount without the need for any additional paperwork.

Family and friends do come in handy at times. If you can borrow the money you owe from a friend or loved one, you’ll avoid interest and penalties charged by the government. And it’s usually more agreeable to pay back those closest to you than it is the IRS (usually!). But don’t take advantage of them; pay back the money that you borrowed as agreed, plus maybe a little more just to express your appreciation.

Don’t forget that you can also pay the IRS, as well as most state taxes, by a major credit card. This method of payment is not highly recommended, however, due to the fact that many credit cards charge very high rates of interest, and you’d wind up paying substantially more than if you let the IRS finance the debt. But it is an available method of payment.

Speaking of letting the IRS finance what you owe, you might consider requesting a formal installment agreement using IRS Form 9465, Installment Agreement Request. You can file this form separately or send it along with your tax return in April. The IRS will generally accept an installment agreement if the amount you owe is less than $25,000 and the balance will be paid within five years. If you owe less than $10,000 and meet other guidelines, the IRS cannot deny your request. They’ll charge you a user fee to obtain the agreement, along with a monthly late-payment penalty of 0.25%.

You can also request a six-month extension of time in which to pay. Keep in mind that you still must file your tax return by the normal April due date. IRS Form 1127, Application for Extension of Time for Payment of Tax, which is used to request the extension, must also be filed by the April tax deadline. The extension will be granted only if payment of your taxes will produce “undue hardship” on you or your family, which you’ll have to prove to the IRS’ satisfaction. You’ll also have to provide statements of income, assets, liabilities, and expenses for three months preceding the filing due date, which is one reason why this method of payment is not strongly recommended.

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