Whether you ended up owing a massive amount of money to the IRS or simply don’t have the means to pay an unexpected bill, having a negative balance on your taxes can be a scary thing.
The very first commandment of owing taxes is to address the problem head-on; each month that you don’t pay the full amount comes with a penalty fee and interest added to your balance.
There are, however, several payment options provided by the IRS to help you out of the bind as soon as possible. Here’s how to pay your taxes owed, even if you can’t afford the full amount right now.
Online Payment Agreements
If your tax bill is more than you can pay off in a couple months, consider applying for an Online Payment Agreement installment plan. The agreement allows you to set a monthly amount and a day each month to make your payment. So long as the combination of your taxes owed and any penalties and interest is $50,000 or less, you’re good to go for a long-term payment plan up to 72 months. You may even be able to qualify for a short-term agreement of 120 days if your balance is under $100,000.
Online Payment Agreements are pretty easy to apply for. All the information you need should be on your most recent tax return: filing status, Social Security Number, address and so on. Just know that there will be a fee to set up the agreement that can range from $31 to $225, which will be added to your total bill and paid over time.
How do you pay?
There are several ways to pay electronically. The IRS provides a portal to pay directly from your bank account, or you can use a credit or debit card for a small fee charged by the card processor. If you’re on your phone, you can use either of those methods on the IRS2Go app.
You can also pay with cash or wire transfers if you have the time to do so. To pay cash, you’ll need to find the nearest PayNearMe retail partner through the Official Payments site. For wire transfers, make sure you’re aware of your financial institution’s availability and cost per transfer.
No matter what you use, budget as much as possible for your taxes owed out of each paycheck. The sooner you pay your taxes due, the more you’ll reduce those interest and penalty amounts.
Offers in Compromise
If your tax debt is too high to pay back, even in installments, you may qualify for an Offer in Compromise. An Offer in Compromise is an agreement between you and the IRS to settle for a smaller amount than the tax debt you owe. This is to suit the best interest of you and the IRS, but the trick is finding that amount: You must make an appropriate offer based on what the IRS considers your true ability to pay, given factors like your income, expenses and any assets.
Filing an Offer in Compromise should be more of a last resort than a first choice. You have to pay an application fee of $186 per offer, and if the IRS doesn’t think it’s fair, they’ll reject it and you have to start over. Luckily, the IRS provides an Offer in Compromise pre-qualifier tool to calculate whether you’d qualify before you apply.
However you settle your tax bill, remember to set aside time early in the year so you’re in better shape for next tax season. Whether you adjust your W-4, pay more toward quarterly estimated taxes, or simply open a savings account to prepare for a large bill, be actively involved with your finances to prevent panic over your taxes next year.