What to Do if You Can’t Pay the Taxes You Owe

Tax preparation season is well underway. If you have recently had your taxes prepared and found out you owe money and have no means to pay, what should you do? This is a question many people are faced with every year. First, don’t panic. There are some steps you can take that will help you pay back what you owe.

The most important thing you can do is to still file your taxes by the deadline. When you file your taxes you should include a check for whatever you can pay. Even if you can’t pay one cent however, you still need to file on time to avoid a steep penalty fee for late filing.

After you have filed, in approximately 45 days you will receive a bill from the IRS with calculated interest for the balance of what you owe. For some people this 45 days in enough time for them to come up with the money. Some people just need a few extra pay checks and if that is you, waiting for the bill is an ok option. If you know you will still not have the money in 45 days you will need to determine how you will be able to pay off your balance.

First, determine if you have any means to get the money. Some people will use resources that they normally would not like to. Can you take a loan out of your retirement, cash in sick or paid time off at work, cash in a mutual fund or take a line of equity out on your home? If you truly do not have a resource to get the money, your next best bet is to file an online payment agreement on the IRS website.

According to the IRS website, if you owe $25,000 or less in combined tax, penalties and interest you can apply for an installment payment agreement. Most people can file right on line and will receive information on approval in about 10 days. Sometimes you will need to call the IRS directly to get approved. When you fill out the application you will have two options to apply for. The first is for a 120 day extension. You should use this option if you know that within 120 days you will be able to pay in full.

If you know you will not be able to pay in full within 120 days then you should apply for the second option. The second option will set you up with a monthly payment plan and money can be taken right out of your checking account. There are some fees involved with this option and they do vary by income.

If your situation is dire, you may also be able to qualify for an offer in compromise. These are rarely given, but do allow a tax payer to settle their amount owed for a lesser sum. You will have to show true hardship and the IRS will only accept such a plan if they believe there is no other means for you to pay back what is owed.