Payment Options if You Owe the IRS

The IRS will work with you if you can't immediately pay in full

Tax Time
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If you complete your tax return only to realize that you have to pay the IRS, you can take some small comfort in knowing that you're not the first person to find himself in this predicament. Yes, it can be particularly stressful if you've never owed the IRS before or if you just don't have the available cash to make a lump sum payment. The Internal Revenue Service has dealt with this dilemma many times before, however, so it offers some options.

How Much Do You Owe? 

First, figure out how quickly you can reasonably pay off the tax debt. If you have the cash on hand or you can get it, paying the debt all at once will save you some money because the IRS continues to assess late payment penalties up through the date you pay in full. If that's not possible, however, the IRS will let you pay the debt over time. The downside to this is that interest and late charges will continue to accrue on your debt until it's paid off. 

If You Can Pay Within 45 Days 

If you can't pay your tax bill in its entirety right now but you know that you'll be able to do so within 45 days, send in a partial payment using the Form 1040-V payment voucher at the time you file your return. Most tax preparation software provides the form, and it's also available online at the IRS website. Wait for the IRS to send you a letter detailing your outstanding balance and any late charges that have been added. The IRS usually provides a grace period on that letter of between 30 to 45 days for payment.

Pay your remaining balance by the deadline set by the IRS.

If You Can Pay Between 45 Days and 120 Days 

The process is similar if you can pay within four months. Send in a partial payment using Form 1040-V and wait for the IRS to send you a letter telling you how much you owe including late charges. Then call the IRS at the number shown on the letter to request a short-term extension of time to pay beyond the date set in the letter. Propose a definite deadline for paying off your balance in full and the IRS will note that date in its records. Use the payment voucher included with the letter to make your next and final payment.

Calling the IRS is important with this payment tactic because it will prevent the government from taking more aggressive collection actions.

If You Need More Than 120 Days

The IRS will usually let you set up a monthly payment plan, also called an installment agreement, if you're going to need a more significant amount of time to pay off the tax debt. This is a formal agreement to pay the IRS over time, and the IRS will likely approve your payment plan as long as it will pay off your tax debt in six years or less.

Depending on how much you owe, you might also have to submit a financial statement. This is generally required if you owe more than $10,000, but streamlined installment agreement applications are available for taxpayers who owe up to $25,000. The IRS does charge a fee to set up these plans. It ranges from $43 for low-income taxpayers up to $225 as of January 1, 2017. This is a one-time fee that's paid up front, typically included with your first payment.

You can apply for an installment agreement online at the IRS website if you owe $50,000 or less. 

If You Can't Pay Your Taxes at All

If you can't afford to pay your taxes at all, your best bet is to seek professional advice from a tax professional who is authorized to represent taxpayers before the IRS. This typically includes CPAs, attorneys, and enrolled agents. Many tax clinics provide free or low-cost access to tax professionals, and that's generally a good place to start if you need help. A competent tax professional can evaluate your options, such as setting up a partial payment plan or negotiating a settlement through the offer in compromise program.

The IRS isn't really as heartless as its reputation would make it out to be. It also offers a Taxpayer Advocate Service for assistance in this and other situations. The worst thing you can do if you owe the IRS money is nothing. It typically welcomes all overtures to get tax debts paid, and if that's not possible, it might accept less than what you owe if your financial situation qualifies.