Millions of us complete our taxes each year only to find that we owe Uncle Sam a few bucks — or a lot more.
This situation can turn scary if you don’t have the funds to write a check to the government. Even if this is the case, the IRS urges you to file anyway. As the agency states, failing to file typically will cost you more in penalties than failing to pay.
The IRS goes on to say:
“You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.”
This year, you have a little extra time to come up with the cash. Due to the coronavirus pandemic, the federal income tax deadline has been extended to July 15. But the extended deadline still may not be enough for some folks.
If you can’t pay, following are some options.
Get a loan
If you need funds quickly, a good solution is an interest-free loan from friends, family or maybe your boss. A personal loan might be another good option. Visit the Money Talks News Solutions Center for more information about a personal loan.
For more on loan options, check out “Now Is the Time to Get a Loan to Fit Your Life.”
You could put what you owe on a credit card or debit card, but it will cost you. Federal payment processors charge upfront fees, plus your card issuer will charge you interest on your balance.
Visit the IRS website for more on this option.
If by Tax Day you ask for an automatic extension of time to file your income tax return, remember that getting the extra time will only help in a limited way. As the IRS reminds you:
“An extension of time to file is not an extension of time to pay.”
However, you will avoid the late-filing penalty, the agency says. Additionally, IRS Form 4868, which is the extension request that can be filled out online or on paper and mailed, says that a late payment penalty will not be charged if you can show “reasonable cause for not paying on time.” According to the IRS:
“You’re considered to have reasonable cause for the period covered by this automatic extension if both of the following requirements have been met.
- At least 90% of the total tax on your 2019 return is paid on or before the regular due date of your return through withholding, estimated tax payments, or payments made with Form 4868.
- The remaining balance is paid with your return.”
Make a deal
The IRS may be nicer than you think. In fact, the agency might work out a payment plan with you if you are enduring financial hardship. According to the agency:
“You should request a payment plan if you believe you will be able to pay your taxes in full within the extended time frame. If you qualify for a short-term payment plan you will not be liable for a user fee.”
For more on this option, check out the IRS website.
‘Offer in compromise’
You may qualify to settle your tax liability for less than the amount you owe, says the IRS. The agency considers your ability to pay, income, expenses and asset equity. The agency says:
“We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time.”
Check your eligibility with the IRS’ Offer in Compromise prequalification tool.
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