Your tax return is finally done. But before you can even pop the cork, you realize that you owe the IRS more than you can pay by October 15. You have options, but first we need to talk about a deadline you already missed.
Bad news: your tax payment was due in April
An extension gives you six more months to finish and file your return. It doesn’t buy you six interest-free months to figure out how you’re paying the bill.
If you still owe taxes from April, interest has been accruing on the unpaid balance. And as if that wasn’t enough, the IRS can also charge a failure-to-pay penalty. With the IRS, procrastination comes with a price.
Can’t pay? File anyway. Seriously.
If you filed an extension, October 15 is still your filing deadline, and you do not want to be late.
That’s because missing the filing deadline adds another unsavory character to the story: the failure-to-file penalty. And the moral of this story? Waiting to file your taxes – even if you don’t have the funds to pay your tax bill – isn’t going to solve the problem. So file the return, even if you can’t pay everything you owe. Which brings us to the obvious question…
I still don’t have the money. Now what?
You know you owe. You know you’re already late. And several thousand dollars aren’t just going to materialize in your checking account. So, what exactly are you supposed to do next?
If you’re expecting the answer to be “just pay up,” you’re in for a surprise. The IRS is surprisingly flexible. Here’s what comes next.
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Can’t pay now? There’s a plan for that.
Contrary to what the voice of anxiety is whispering in your ear, the IRS does not expect every taxpayer with a balance to come up with the full amount overnight. That’s why it offers payment plans.
- Short-term payment plans: Qualifying taxpayers who owe less than $100,000 in combined taxes, penalties, and interest can get up to 180 days to pay.
- Long-term payment plans: An installment agreement lets you make monthly payments. Most individual taxpayers who owe $50,000 or less in combined taxes, penalties, and interest may qualify for a Simple Payment Plan, a streamlined option that gives up to 10 years to pay.
Setup fees may apply, and penalties and interest continue while you pay. But getting on a payment plan can reduce the failure-to-pay penalty and get you on the road to paying off your tax debt.
Make the IRS an offer it (possibly) can’t refuse
If paying the full balance isn’t realistic, an Offer in Compromise may let you settle your tax debt for less than you owe.
Now, don’t think of this as an IRS end-of-season sale. Instead, it looks at things like your ability to pay, income, expenses, and assets when deciding whether to accept an offer. You’ll also usually have to pay an application fee and an initial payment, although there are exceptions for certain low-income tax payers.
If you qualify, you may be eligible to make a lump-sum payment or periodic payments. But an application is just that: an application. The IRS doesn’t have to accept your offer.
When your budget won’t budge
What if a monthly payment doesn’t seem possible? If paying your tax debt would keep you from covering basic living expenses, the IRS may put your account in Currently Not Collectible status. This can pause collection efforts during financial hardship – emphasis on pause.
This doesn’t clear your debt, penalties and interest can continue growing, and the IRS can revisit your financial situation later. But if you’re genuinely unable to pay without sacrificing life’s basic necessities, this option gives you some breathing room.
Whatever you do, don’t ghost the irs
You aren’t going to wake up on October 16 to an empty checking account and a For Sale sign on your house. Collections don’t work that way.
But over time, unresolved tax debt can lead to collection actions including federal tax liens and levies, and your balance will only keep getting bigger.
So, don’t think of October 15 as the day you have to take on five side gigs, sell your stuff on Craigslist, or win the lottery. It’s about filing your return, paying what you can, and figuring out what comes next. You don’t need all of the money by October 15. But you do need a plan.
