How and When to Pay the IRS If You Owe Taxes

Your Options for Paying Your IRS Tax Bill

Young woman writing a check at dining room table
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Realizing 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 currently have on hand. You can use a credit card, or even ask the IRS to let you pay the balance off over time.

File an Extension 

Don't take that completed tax return and your debt at face value, at least not if you prepared your return yourself. You can get an automatic extension to file your tax return by submitting Form 4868 to the IRS. This gives you until October 15 to thoroughly review and doublecheck your return.

Look for deductions that you might have missed or any miscalculations you might have made. Consult a tax professional 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 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 owe according to your original calculations.

You'll 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.

You won't lose any money you overpay because your ultimate tax bill turns out to be less than you thought it was going to be. The IRS will send you a refund if you pay too much. At least remit as much as you can if you don't have enough money on hand to pay the entire balance due.

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. In this case, it would be the next business day.

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 avoid the late filing penalty—which is a hefty 5% of the taxes you owe for every month your return is late—if you file an extension by the April due date then 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. This penalty applies to all returns due from Jan. 1, 2020 onward.

Options for Payment

You can pay online, you can send the IRS a paper check...or you can ask the agency for a little understanding and 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 Treasury Department for processing federal tax payments. You must set up a profile account with your bank account information, but then you can 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, and it will be automatically withdrawn from your bank account on the date you designate.

IRS Direct Pay 

The IRS also offers Direct Pay, a similar web service. The site doesn't retain your bank account or personal information, so you'll have to re-enter 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 good, 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 right away. The important thing is that you don't just 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 so you can retire the debt sooner and minimize interest charges.

The IRS will still charge the late payment penalty as well as interest, and there's a one-time processing fee to set up the plan—$149 as of 2020, but this drops to just $31 if you apply for the installment agreement online and agree to have the monthly amount taken from your bank account by direct debit. 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 creditworthiness, at least not if you owe less than $50,000. You can apply online using the Online Payment Agreement Application on the IRS website.

Other Options 

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 if this option makes sense for you.

The Taxpayer First Act allows the IRS to accept credit or debit card payments beginning in 2020.

Seek advice from a licensed 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 some circumstances, or it might defer payments until such time as you get back on your feet financially. 

Article Sources

  1. IRS. "Common Penalties for Individuals." Accessed Oct. 24, 2020.

  2. EFTPS. "Welcome to EFTPS." Accessed Oct. 24, 2020.

  3. IRS. "Direct Pay With Bank Account." Accessed Oct. 24, 2020.

  4. IRS. "Form 9465 Installment Agreement Request." Accessed Oct. 24, 2020.

  5. IRS. "Apply Online for a Payment Plan." Accessed Oct. 24, 2020.

  6. IRS. "Topic No. 202 Tax Payment Options." Accessed Oct. 24, 2020.