Millions of Americans are in the midst of filing their taxes as the deadline approaches. What many will find is that they owe the IRS. But what happens if you can’t pay your taxes?
In this article, I’m going to show you what to do when you realize that — instead of getting a tax refund — you owe the government some money.
What to do if you’ve filed your taxes and find out you owe the IRS
For many people, tax time brings visions of free money and some bonus cash to travel with in the spring and summer. But for others, it’s a dreaded time of the year because they owe Uncle Sam.
But don’t worry: Here are three easy steps to follow if you owe the IRS:
- Don’t panic
- Ask for an extension (if you need one)
- Devise a payment plan
The Internal Revenue Service says it expects to process more than 155 million tax returns in 2019, with the vast majority coming before the April 17 deadline.
What should you do if, upon filing your taxes, you discover that you owe money to the IRS? Well, first of all, don’t panic. Secondly, make plans to pay what you owe.
As with any sophisticated organization, the IRS offers many ways to pay. Those methods include debit or credit card, IRS Direct Pay online, the IRS2GO mobile app, E-filing, the Electronic Federal Tax Payment System or via check or money order.
Clark: ‘Absolutely, positively file your taxes on time’
Money expert Clark Howard says the way to stay out of trouble and avoid having to pay even more money than you legally owe is to make sure you at least file your taxes.
“Absolutely, positively file your tax returns on time even if you don’t have the money to pay,” he says. “Send it in, even if you have no money to send in.”
What to do if you owe the IRS & can’t pay your taxes
Clark says the reason you want to get something to the IRS is because of the way that taxpayers are penalized. “Here’s the deal: The penalty for failure to file is massive; the penalty for failure to pay is actually pretty small.”
1. Don’t panic, seriously
Acting irrationally is never good for your bottom line. When you find out that you owe the IRS, you may urgently feel the need to take care of the bill, even taking out a loan — don’t do it. Keep your composure to put together a plan.
2. If you need more time to pay your taxes, file an extension
The IRS provides an easy way to file an extension — and it’s free. You can e-file an extension by filling out this form.
3. Set up an installment plan with the IRS
Can’t scrounge up enough to cover the whole tax bill? Clark says the IRS will work with you by setting up an installment plan.
“As long as you’ll pay them the money over typically a year, they’ll approve it without any doubt,” he says.
Clark adds that even if you’ve proposed a payment plan and haven’t heard back from the agency, stick to it.
“The best news is the interest rate you owe when you pay your taxes off over time is very, very low,” he says. “So you can feel comfortable that your’e going to be A-OK with the IRS as long as you file that return and pay what you can. The big thing? Always file your return.”
Here’s a bonus IRS tip that could save you some money
BONUS: Many people don’t know it, but if you’ve been assessed interest on an outstanding tax bill but the IRS took a long time to investigate it or tell you about it, you can request that the interest be abated (reduced).