We’re closing in on Tax Day, which means some of us are handing over a sizable sum to our best friend, the IRS. But what happens if you simply don’t have the money to pay your tax bill? First and foremost, file anyway. Your bill won’t even come for a month, so if it’s an issue of waiting for a paycheck to come through, take a deep breath. But if you need more than 30 days, you’ve got options.
1. Apply for an Extension
If you can get the money together in 120 days, apply for the 120-day extension. There’s no application fee, but you’ll have to pay interest and penalties (at a lower rate than an installment plan, and far less than what you’d be charged if you simply don’t pay at all).
2. Set Up an Installment Plan
You have the option of breaking up your payment into installments. When you apply, you will be charged a user fee of $120, or $52 if you set up automatic transfers from a debit account. It’s up to you to specify how much you want to pay each month and to pick a day. Penalties and interest will continue to accrue until you’re all paid up.
3. Negotiate a Compromise
If an extension or installments won’t work for you, you can apply for an offer in compromise, so you can settle your tax bill for less than you actually owe. Offers in compromise are awarded based on your ability to pay, your income, your expenses, or your asset equity, and it’s essentially a negotiation: You’re telling the IRS that you’re more likely to pay in full — and promptly — if you can pay less. You’ll have to pay a $186 application fee.
4. Use a Credit Card
You can use a credit card to pay your tax bill, but with some hefty caveats. Keep in mind that you’ll have to pay a fee ranging from 1.87 to 2.35 percent on your tax total. Paying with a credit card makes the most sense if your tax bill won’t max out your card and if you can make regular payments. Otherwise, you could totally screw your credit score.
[Editor's note: This was originally published April 6, 2015.]