Yes, You Can Still Pay Your Tax Bill. Here's What to Do if You Can Pay in Full

Most importantly, don't skip the first tip from this CPA.

Dashia Milden Editor
Dashia is a staff editor for CNET Money who covers all angles of personal finance, including credit cards and banking. From reviews to news coverage, she aims to help readers make more informed decisions about their money. Dashia was previously a staff writer at NextAdvisor, where she covered credit cards, taxes, banking B2B payments. She has also written about safety, home automation, technology and fintech.
Dashia Milden
5 min read
Viva Tung, CNET / Getty Images

Your taxes were due Monday. If you didn't file because of a looming tax bill, it's a good idea to file ASAP to limit any IRS late filing or late payment penalties. And even though your taxes are technically late, you can still have options to break your tax bill into smaller, more manageable payments.

I talked with Logan Allec, a certified public accountant and CEO of Choice Tax Relief, to find out what to do if you can't afford to pay your bill in full. Here's what he recommends. 

Read more: These 5 Tax Mistakes Left Me With a $10,000 Bill. How to Avoid the Same Fate

1. File as soon as possible, even if you can't pay your full tax bill

Filing your taxes is required by law. Not doing so can result in even bigger problems than avoiding payment, Allec said.

"If you can't pay, please file," Allec said. "The penalties for not filing are more stern than the penalties for not paying." 

tax tips badge art

There are two separate common penalties: the failure to pay penalty, which is 0.5% per month; and the failure to file penalty, which is 5% per month. Both max out at 25%, Allec said, but the failure-to-pay penalty can take years to max out, while failure-to-file maxes at five months. Additionally, if your tax return is more than 60 days late, the minimum failure-to-file penalty is $435 or the balance of your taxes due, if less than that.

Avoiding your taxes could leave you in a worse financial position. It's better to file and know what your tax liability is so you can work toward it. Plus, there are still a couple of months left before taxes are due, giving you a bit of breathing room to save for your taxes or make partial payments.

Read more: Here's What Could Happen if You Don't File Your Taxes on Time in 2024

2. Apply for an IRS payment plan

If you owe state or federal taxes and can't afford to pay one lump sum, the best bet is to set up a payment plan, Allec said. 

The IRS offers a short-term payment plan that lets you pay the debt in full within six months if you owe less than $100,000 in taxes, penalties and interest combined. There's no fee to set up the plan but keep in mind that penalties and interest will still accrue. You can set up the payment online.

If you can't pay the full amount within that time frame and you owe less than $50,000, consider a long-term payment plan that gives you six years to pay the balance. You can set up direct debit withdrawals to save on fees and postage. You may also have the option to enter the monthly payment you're comfortable with, and the IRS system will either accept it or propose a higher amount, Allec said. 

If you owe more than $50,000 and need more time to pay, you'll need to speak with someone at the IRS to set up a plan or complete and mail an Installment Agreement Request, also known as Form 9465. You may be able to propose a monthly payment amount to the IRS or the tax agency will create a plan for you based on your financial situation. Keep in mind that outstanding state tax balances must be handled with your state, and the payment plans will vary. 

3. Check the IRS Hardship Assistance program requirements

Depending on your financial situation, you may find some financial relief if you can't afford an IRS payment plan through the Hardship Assistance program, Allec said. 

To qualify, you'll need to submit proof of your assets and liabilities, such as your bank statement, monthly bills and income to show that you won't be able to pay the balance in full anytime soon. 

"They don't hand these hardship-based resolutions out like candy," Allec said. "Many people are denied for them." 

You may qualify for the Offer and Compromise hardship program, which lets you propose an offer to the IRS that will include all back taxes and penalties you've accrued. But it's the hardest program to qualify for, Allec said. 

4. Explore other ways to pay your tax bill

In some cases, using a credit card to pay your tax bill could make sense, especially if you have a 0% APR purchase offer. Just be aware that you'll pay processing fees when paying with a credit card. These fees could end up costing you less than the interest that could accrue on your tax debt with an IRS repayment plan.

You should cover your tax bill with a credit card only if you know you can repay the balance within a few months or before the introductory APR period expires. Otherwise, it's not worth it. Credit card APRs are averaging over 20% right now, and that high level of interest will quickly pile on to your existing tax debt.

You might also consider a personal loan or pulling from emergency savings. Just weigh the benefits and risks before jumping into a new financial agreement. If you can pay your tax bill within six months with the IRS installment plan, it's generally the option that will save you the most money in fees and interest.

5. Don't ignore the IRS

If you don't set up an agreement with the IRS, don't neglect their letters. This could indicate to the IRS that you're refusing to pay, and the agency may take more drastic measures. 

If you're receiving letters via certified mail, it's best to speak with a certified public accountant, tax attorney, enrolled agent or tax debt relief specialist to settle matters before the IRS gets involved.

While a creditor has to go through court to get a money judgment against you, the IRS doesn't, Allec said. For example, the IRS can enforce an act of collections that gives the power to garnish your wages or pull money directly from your bank account to cover your tax balance. If you own your home, you may also face a Notice of Tax Lien at the federal or state level. In this case, the IRS can actually seize your property to pay your tax debt.

Even though Experian, TransUnion and Equifax voluntarily decided to no longer report tax liens on your credit report, they're still public records for creditors to see. And that can be damaging to your finances in the long run. 

More tax advice