Can’t Pay Your Taxes?

Mar 31, 2016 by

Uncle Sam I Want You!

Pay up or else!

If the bottom line on your tax return is an “Amount You Owe” too big and fat for you to pay by the April 18 deadline to send your return, you don’t have to flee the country!

What to Do If You Can’t Afford to Pay Your Tax Bill

First I’ll relay the IRS’ official advice if you can’t afford your tax bill. Then of course I can’t resist adding my own couple of cents.

The IRS’ recommendations if you can’t afford to pay your tax bill just now:

  1. File on time, and pay as much as you can.
  2. Get a loan or use a credit card to pay your tax.
  3. Use the IRS’ Online Payment Agreement tool to ask for a payment plan.
  4. Don’t put your head in the sand and hope your tax bill goes away.
  5. File to reconcile advance payments of the Premium Tax Credit. You must file a tax return and submit Form 8962 to reconcile advance payments of the premium tax credit with the actual premium tax credit to which you are entitled. You will need Form 1095-A from the Marketplace to complete Form 8962. Failure to reconcile your advance payments of the premium tax credit on Form 8962 may make you ineligible to receive future advance payments. (I know: sigh.)

And now here’s my input:

  • #4 above is the most important—do not do nothing! Tax debt is arguably the worst sort of debt. In general, bankruptcy can’t help, and the IRS will hound you to the grave and likely beyond.
  • Try #3—requesting a payment plan—first. Chances are good that the IRS will charge you less interest for financing your tax debt than any private sector lender, and you might avoid fees and penalties altogether if you take the initiative and work honestly with the IRS. There’s no harm in trying and potentially great benefit.
  • #2—getting a loan or putting your tax bill on your credit card—might make sense IF you can get a low APR and you’re certain you can make payments on time. Just don’t do something crazy desperate like visit your local neighborhood payday lender to borrow money to pay your taxes.

 

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