Realizing that you owe a tax balance when you've finished preparing your tax return is never welcome news. But you have a few options for paying what you owe, even if it's more than the cash you have on hand. You can use a credit card, or you can ask the IRS to let you pay the balance off over time.
You'll normally accrue interest and penalties on any unpaid balance after the April 15 filing date if you don't pay your balance due by that time. But this date has been extended for 2021 tax returns to April 18 in 2022 because April 15 falls on a holiday.
File an Extension
Don't take that completed tax return and your debt at face value if you prepared your return yourself. You can get an automatic extension of time to file your tax return by submitting Form 4868 to the IRS by the April due date instead. This gives you until October 15 to thoroughly review and double-check your return, or to have someone else do it for you.
Look for deductions that you might have missed or any miscalculations you might have made. Consult a tax professional or use trusted tax software if you haven't done so already. You might be eligible for a tax credit or a deduction that you overlooked because you didn't even know it existed.
The goal is to reduce your preliminary tax debt, if at all possible. But there's a caveat here. You're supposed to pay your entire tax balance at the time you submit Form 4868 to ask for an extension, based on what you think you're going to owe according to your original calculations.
Don't worry if you end up overpaying on your tax bill. The IRS will send you a refund. At least remit as much as you can if you don't have enough money on hand to pay the entire balance due. Penalties and interest will accrue on any unpaid balance.
Tax-filing due dates in 2022 for 2021 returns and for paying any taxes due on those returns have been extended to some residents in response to various disasters in those areas. These states include Colorado, Illinois, Kentucky, Arkansas, Tennessee, Washington, and Puerto Rico. You can consult the IRS disaster relief announcements to determine you're effected.
Meet the Deadline for the Extension
The IRS must receive Form 4868 on or before the tax filing deadline, which is usually April 15, unless that day falls on a weekend or holiday. It would be the next business day in this case. This happens in 2022, when the due date for 2021 tax returns is pushed back to April 18.
The IRS will charge a late filing penalty, a late payment penalty, and interest on any unpaid balance you owe if you don't file your return or an extension on time and if you also fail to pay on time. But you'll at least avoid the late-filing penalty if you file an extension by the April due date, which is a hefty 5% of the taxes you owe for every month your return is late. Then be sure to file your return by the extended deadline in October.
This penalty increases to $435 or 100% of the taxes you owe, whichever is less, if you're 60 days late or more.
Your Options for Payment
You can pay any tax you owe online, send the IRS a paper check, or ask the IRS for a little understanding. You can often work out payment terms if you're really in a financial bind.
The Electronic Federal Tax Payment System
The Electronic Federal Tax Payment System (EFTPS) is a web service operated by the U.S. Treasury Department for processing federal tax payments. You must set up a profile account with your bank account information. But you can then make payments for various tax obligations, including extension payments, estimated taxes, or even tax balances for previous years.
You can schedule a payment in advance. It will automatically be withdrawn from your bank account on the date you designate.
IRS Direct Pay
The IRS also offers Direct Pay, a similar web service. This site doesn't retain your bank account or personal information, so you'll have to reenter all this data every time you want to make a payment.
You can go back in and change or cancel a payment up to two business days before the pay-on date if you schedule the payment for a date in the future.
U.S. Postal Service
You can also send your money to the IRS the old-fashioned way—just mail a check. The IRS has different addresses for payments depending on the nature of the payment and where you live. You can find a full list of addresses on the IRS website to help you identify which one you should use.
Set up a Payment Plan
The IRS offers payment plans if you can't pay all or even anything you owe right away. The important thing is that you don't ignore your plight, hoping that it will go away, because it won't.
You can set up a monthly installment agreement with the IRS, allowing you to pay what you owe over time. You can even decide how much you want to pay per month, at least to some extent. The entire balance has to be paid off within 72 months, so your minimum payment would be what you owe divided by 72. Leave some room for interest and penalties when you're making your calculations.
You're not prohibited from paying more than the amount you've committed to in any month. You can retire the debt sooner and minimize interest charges by doing so.
The IRS will still charge the late-payment penalty as well as interest, but it's reduced to 0.25% a month. There's a one-time setup fee of $130 as of 2022, increasing to $225 if you don't apply online. But if you do apply online and if you agree to have the monthly payments taken from your bank account by direct debit, this one-time processing fee drops to $31. And the IRS offers a low-income setup fee option of $43 if you qualify. Direct debit is required if you owe more than $25,000.
You don't have to qualify for the installment agreement by submitting a collection information statement to prove your assets and income, at least not if you owe less than $50,000. You can apply online using the Online Payment Agreement Application on the IRS website.
Depending on how much you owe and your credit, you might want to look into private loan options if you can't pay by the tax deadline. You'll probably pay more in the way of interest. But this would allow you to pay off your tax debt and avoid a payment plan with the IRS. Use a loan calculator to determine whether this option makes sense for you.
The Taxpayer First Act has allowed the IRS to accept credit or debit card payments since 2020.
Seek advice from a tax professional to evaluate other ways to resolve your tax debt if you can't afford to pay off your tax debt monthly or if you owe more than $50,000. The IRS also considers offers in compromise. The agency might be willing to accept an amount less than what you owe under certain circumstances, or it might defer payments until such time as you get back on your feet financially.
Frequently Asked Questions (FAQs)
How do I pay quarterly estimated taxes?
You may have to pay quarterly estimated taxes to avoid a penalty at the end of the year if you don't have enough taxes withheld from your paychecks or if you receive income from self-employment or another source that doesn't withhold taxes on your behalf. Use Form 1040-ES to calculate your estimated taxes, then submit your payments via mail or through the IRS online EFTPS payment portal before the quarterly deadlines.
How do I pay state taxes?
Each state has its own agency for handling tax filing and payments. Check your state agency's website for more information about how to file and to pay your state and local taxes.
What happens if you don't pay taxes?
You may be subject to penalties and interest on the overdue balance if you fail to file or pay taxes on time. These accumulate the longer you go without making payment. The IRS can take further collection actions if you accrue a large enough balance, such as putting a lien against your bank accounts or home. Reach out to the IRS promptly to make arrangements and avoid these penalties if you think you will have trouble paying your taxes.
- Asking for an extension of time to file your tax return doesn't give you more time to pay, but it can be helpful so you can make sure your return is correct and you've claimed every deduction and credit you qualify for.
- The IRS provides two electronic payment systems, Direct Pay and EFTPS, that make it very easy to arrange payment electronically.
- You can apply for an installment agreement with the IRS if you can't pay in full right away. But your outstanding balance will accrue interest.