April 15th has arrived, and you don’t have enough money to pay your taxes. What are you going to do?
First of all, don’t panic. You are not alone. Every year thousands of people come up short when it comes time to pay the IRS. Here is what you can do when you can’t pay your taxes.
First of all, file your tax return on time. Pay whatever you can with your tax return. This way you won’t be subject to the failure to file penalty, which can be as high as 25% of the tax due. If you won’t have your tax return completed by Apirl 15th, you can file an extension. But the extension is just and extension of time to file, not an extension of time to pay.
If you know you will be able to pay your taxes within the next few months, you can file and extension with a payment, and then file your tax return and pay the rest of your tax bill at that time. You will still be subject to interest and penalties, but you may be able to avoid the convenience fees that come with paying your taxes by credit card, or the set up fee the IRS charges for an installment agreement.
But if you have a really large tax bill, one that might take years to pay off, you are going to have to accept the fees and either pay your taxes with your credit card, or you can request a payment plan (also known as an installment agreement) from the IRS.
To pay your taxes by credit card you need to go through an authorized payment company. They will charge you a convinience fee, which is around 3% of the amount that you are paying. You can find out more about paying by credit card here.
If you can’t or don’t want to pay your taxes by credit card, you can request a payment plan from the IRS. If you owe less than $25,000 and expect to be able to pay your taxes within 3 years your payment plan will usually be accepted. The IRS will charge you a user fee of $105. You can get the fee lowered to $52 if you have your payments automatically debited from your bank account. Low income taxpayers may qualify for an even lower fee. You can apply for an installment agreement online here.
Once you have your current taxes taken care of you need to make sure that you are not in the same boat next April 15. If you are self-employed you will need to pay more with your quarterly estimated tax payments. If you are an employee, you need to ask your employer to withhold more taxes from your paycheck. I know it hurts, but that is the only way to avoid owing next year.