4 Options if You Can't Pay Your Tax Bill

If you're reasonably certain you will owe taxes this year, you may be feeling a little stressed. You may even be tempted to pretend we skipped tax time this year and put the subject out of your mind. Our advice to you is simple: Don't. Do not blow off the IRS because you don't know how to cover your tax obligation.

What could happen

We don't tell you this to scare you into action. Instead, we want you to clearly understand what could happen if you fail to pay taxes. Failure to pay could lead to the following:

• A penalty of 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid, not to exceed 25% of your unpaid taxes. 
• Accrued interest. You'll be charged interest on the unpaid taxes equal to the federal short-term rate, plus 3%.

Continue to ignore your taxes, and the situation gets worse. The IRS can:

• File a federal tax lien on your property. A lien on your property means the IRS has a claim, and if you sell your home, the IRS gets the money it's owed before you receive the remaining proceeds. 
• Seize your property.
• Make you forfeit your refund (if you are due money).
• File tax evasion charges.
• Revoke your passport.

Making an effort to pay your tax bill means you don't have to worry about what the IRS has in its arsenal.

Four easy options

What's wild about anyone allowing their taxes to go unpaid is how ridiculously easy it is to make things right. Despite all the damage the IRS could inflict, the government revenue service has zero desire to make your life miserable. In fact, you may be surprised by just how accommodating the IRS can be if you're willing to work with it. An estimated 5 million American taxpayers choose one of the following options each year to get their taxes paid.

1. Request an extension

According to the IRS, you can use the IRS Free File to request an automatic tax-filing extension. Filing the form gives you until Oct. 15 to file your return. On the form, you'll be asked to estimate how much you think you owe in taxes. Pay as much as you can afford when you file the extension request. You have until mid-October to sort out your taxes, file a return, and either make a payment or request a refund.

2. Request a payment plan

Suppose you owe $5,000 on federal taxes for last year but don't have the money in your bank account right now. The IRS allows taxpayers to set up an installment agreement to get the bill paid off a portion at a time. Applying for a plan is easy. You can use the OPA application, file a Form 9465 when you file your return, or call the IRS at 800-829-1040 (individuals) or 800-829-4933 (businesses).

3. Ask about "currently not collectible" status

If you're facing financial hardship and absolutely cannot pay anything toward your tax bill, the IRS may allow you to wait until your situation has improved to pay taxes. You'll be asked to provide proof of financial hardship, but if you find yourself in a pickle, it's worth jumping through a hoop or two.

4. Take advantage of the IRS's Offer in Compromise (OIC)

When a taxpayer has little to no assets and has trouble covering their basic living expenses, the IRS will commonly allow them to settle their unpaid taxes for less than the amount owed. To qualify for an OIC the taxpayer must have:

• Filed all tax returns.
• Received a bill for at least one tax debt.
• Made required estimated tax payments for the current year.
• If the taxpayer is a business owner and has employees, they must have made all required federal tax deposits for the current quarter and two preceding quarters. 

Given the number of options available to you at tax time, it makes no sense to ignore taxes. The first step is to contact the IRS to learn which option works best in your situation.