Help! We Canít Pay Our Taxes!

Sometimes you know it’s going to happen. Sometimes it’s a shock. Either way, realizing you can’t pay your taxes on time can be a scary and stressful revelation. Below are several approaches for how best to pay the IRS, depending on how quickly you believe you will have the money. As with paying back loans, short-term solutions are less expensive and more favorable.

First, some general rules of thumb, regardless of the size of your tax obligation:

If you need 30 days to be able to pay the IRS:

File your tax return—on time!—and wait to receive a bill from the IRS, which usually arrives in the mail a few weeks after the filing deadline. Remember, the IRS will contact you through snail mail; any phone call you receive claiming to be from the IRS is a scam.

On your tax balance, you will also owe a monthly fee of 0.5% of your unpaid taxes, up to a 25% maximum. If you can show reasonable cause for your late payment, they could waive this charge.

If you know you’ll need these extra 30 days to come up with your taxes due but don’t file a tax return on time, you’re looking at a 5% monthly late fee, with that minimum jumping to $210 or your entire tax balance, whichever is less, if you don’t file within 60 days.

If you need 31 – 120 days:

If there’s a chance you won’t be able to pay your tax bill within 30 days of April 15, apply for an extension, which buys you up to 120 days to pay the IRS in full. You will still have to pay the monthly fee of 0.5%, but you won’t be under threat of the larger late fee quite as fast. See if you qualify to have all fees and interest waived through the IRS Fresh Start initiative.

If you need more than 120 days:

When it takes over four months to clear your tab with the IRS, there are a few different paths you can choose, but in general they will be more extreme and costlier in the long-run than the other payment period options. Carefully weigh the pros and cons of each method below before choosing one.

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