How and When to Pay the IRS If You Owe Taxes

Here are your options for paying your tax bill

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You've finished your tax return only to realize that you owe the Internal Revenue Service (IRS). Finding out you owe a tax balance to the IRS is never welcome news, but you have some options for paying what you owe—even if it's more than the cash you currently have on hand.

First, File an Extension 

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

Look for deductions 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 if only 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. Ideally, you should pay your entire tax balance at the time you submit Form 4868 based on what you think you owe. Otherwise, you're likely to accrue interest and penalties on any unpaid balance.

Remit as much as you can if you don't have enough money on hand to pay the entire balance due. You won't lose any extra money you pay if your ultimate tax bill turns out to be less than you thought it was after you spent some time finalizing your return. The IRS will send you a refund if you pay too much.

Meet the Deadline 

The IRS must receive Form 4868 on or before the tax filing deadline, which is usually April 15.

On Friday, March 20, Treasury Secretary Steven Mnuchin announced on Twitter that Tax Day, the deadline for individual returns for the 2019 tax year, would be pushed from April 15 to July 15. On Saturday, March 21, 2020, the IRS confirmed this on its website, stating that Tax Day 2020 is now July 15, 2020.

The agency 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 fail to pay on time.

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 then file your return by the extended deadline in October. This jumps to $435 or 100% of the taxes you owe, whichever is less, if you're 60 days late or more.

The penalty was just $210 from Jan. 1, 2018 through Dec. 31, 2019, but the Taxpayers First Act increased it to $330. Then the Setting Every Community Up for Retirement Enhancement (SECURE) Act ramped it up again to $435. This penalty applies to all returns due from Jan. 1, 2020 onward—in other words, the 2019 tax year return that's due in July 2020.

So file the extension and pay as much as you can, then go back to the drawing board to make sure you really owe all that you think you owe.

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 paper terms if you're really in a financial jam.

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 have to re-enter all this data whenever 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 list of addresses on the IRS website to help you identify the one you should use.

Set Up a Payment Plan

The IRS offers payment options if you can't pay all or even anything right away. The important thing is that you don't just ignore your plight, hoping it will go away...because it won't. 

You can set up a monthly payment plan with the IRS, called an installment agreement if you can't pay some or all of your balance. This allows you to pay what you owe over time. You can even decide how much you want to pay per month, at least to an extent. The balance has to be paid off within 84 months, so your minimum payment would be what you owe divided by 84.

This seven-year time period was also affected by the Taxpayer First Act. It was extended from five to seven years.

Leave some room for interest, penalties, and fees when you're making your calculations.

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 might be able to get a personal loan at an interest rate that's less than the penalties combined with the interest that the IRS would assess. This will allow you to pay your tax debt and avoid any payment plan with the IRS.

The Taxpayer First Act also allows the IRS to accept credit or debit card payments beginning in 2020. Check the IRS website, EFTPS, and Direct Pay periodically to find out when this option officially becomes available.

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 where it 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 financial feet. 

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Article Sources

  1. IRS. "Common Penalties for Individuals." Accessed March 20, 2020.

  2. EFTPS. "Welcome to EFTPS." Accessed March 20, 2020.

  3. IRS. "Direct Pay With Bank Account." Accessed March 20, 2020.

  4. IRS. "Additional Information on Payment Plans." Accessed March 20, 2020.

  5. Congress.gov. "H.R.3151 - Taxpayer First Act." Accessed March 20, 2020.

  6. IRS. "Apply Online for a Payment Plan." Accessed March 20, 2020.

  7. IRS. "Topic No. 202 Tax Payment Options." Accessed March 20, 2020.