What If I Can’t Pay My Taxes On Time? There Are Options Available

While many Americans receive tax refunds, the number of people who owe the IRS has been gradually increasing.

According to consumer analytics platform Civic Science, the percentage of taxpayers owing has risen from 39% in 2021 to 43% in 2023. Failing to pay your tax bill could lead to serious consequences, such as wage garnishment, a lien on your property, or even a revoked passport. While requesting an extension allows you more time to file your tax forms, you are still required to make an estimated payment by April 15.

If you can’t pay your taxes on time, don’t worry. There are several options available to help you manage the situation, including IRS payment plans, personal loans, or working with tax relief companies.

IRS Installment Plan

If you don’t have the funds available right away, the IRS offers installment plans to make payments easier. While you’ll still face interest and penalties, these plans help avoid more severe consequences.

The IRS’s short-term payment plan allows up to 180 days to pay your debt. There’s a 0.5% monthly failure-to-pay penalty, and interest will continue to accrue on the unpaid balance until it reaches 25% of the total amount due.

If you need more than six months to pay, you can opt for a long-term plan, but additional fees will apply. The failure-to-pay penalty of 0.5% still applies.

• If you set up automatic monthly withdrawals online, there is a $31 set-up fee.
• If you do it over the phone, by mail, or in person, the fee rises to $107.
• For self-managed payments, the online fee is $130, and $235 for phone, mail, or in-person setups.

With a long-term payment plan, you’ll typically choose your monthly payment amount, but it must be enough to pay off your debt within 72 months.

Apply for an Offer in Compromise (OIC)

Another option is applying for an Offer in Compromise (OIC), where you ask the IRS to settle your debt for less than what you owe. The IRS evaluates factors like your income, expenses, and ability to pay when deciding whether to approve your request. However, OIC approvals are rare; in 2022, only about a third of the 36,000 OIC requests were accepted.

Take Out a Personal Loan

If you don’t have stellar credit, getting a personal loan might be an easier option than applying for a 0% APR credit card. Before applying, compare loan terms and fees with what you would pay through an IRS payment plan to ensure you’re making the best choice.

• Avant Personal Loans: A good option for borrowers with credit scores as low as 580. You can borrow up to $35,000 and have 12 to 60 months to repay.
• Upstart: Offers loans with approval for credit scores as low as 300, up to $50,000, and repayment terms between 36 and 60 months.

Work With A Tax Relief Company

Tax relief companies can help you work with the IRS or your state’s revenue department to reduce your tax debt, set up payment plans, and stop garnishments or liens.

• Community Tax: Offers a free initial consultation and charges an average of $295 for the investigation phase, the lowest of the tax relief companies we reviewed. You must owe at least $7,500 in taxes, and they do not operate in Minnesota or North Dakota.
• Precision Tax Relief: Requires a minimum tax debt of $10,000 and boasts a 94% success rate with offers in compromise. They offer a free 30-day money-back guarantee and have an A+ rating from the Better Business Bureau.

Borrow Against Your Home Equity

If you own a home, you might be able to use your home equity to secure funds via a home equity line of credit (HELOC). Since HELOC interest rates are usually lower than personal loans or credit cards, this can be a good option for larger tax bills (typically $10,000 or more).

• Fairway Independent Mortgage Corporation: Ranked above average for customer satisfaction and claims it can fund loans in as little as five days.
• PNC: Offers low rates, flexible credit requirements, and great customer service. It has a low $100 minimum draw, and you can switch between a variable and fixed rate after withdrawing funds.

By exploring these options, you can find a solution that works for your situation and avoid the worst-case consequences of missing your tax payments.

 

Source: CNBC