IRS & Refunds

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Can’t Pay Your Taxes on Time? Here Are Your Options

April 11, 2013 : Jenna Bromberg - Past Contributor

What if you owe taxes — but you don’t have enough money to pay them by April 15th? File anyway. The only thing worse than not paying your taxes on time is not filing a tax return by the filing deadline.

Why? For people who owe taxes, not filing a tax return or extension to file by the deadline can increase what they owe the IRS by up to 25 percent in penalties and interest. Yikes.

Here’s how it breaks down: the penalty for not paying in full is 0.5 percent of the unpaid balance per month, whereas the monthly penalty for not filing a tax return is 10 times that amount (5 percent). And, interest also accrues on the unpaid tax and the penalties assessed. So, you’re better off filing a return – even without payment – than filing late altogether. 

Alternative IRS payment options

1. Set up a payment agreement. Most likely, you’ll qualify to set up a payment agreement with the IRS online: those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. You can choose this option even if you haven’t received any sort of bill or notice from the IRS — and it will help you avoid having the IRS file a Notice of Federal Tax Lien to alert your creditors that the government has a legal right to your property.

2. Offer-in-compromise. Some struggling taxpayers may qualify for an offer-in-compromise, an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Essentially, the IRS will take a look at your income and assets and determine your ability to pay (see the Offer in Compromise Pre-Qualifier to find out if you might qualify).

3. Late-payment penalty relief for delayed forms. This year, the IRS is allowing late-payment penalty relief to some who request an extension to file. To get this relief, the taxpayer also must be filing one of the delayed IRS forms resulting from tax legislation passed in January. Additionally, taxpayers must pay their “good faith” estimate of their tax bill by April 15. The IRS will waive any late-payment penalties applied to the taxpayer’s balance due if these guidelines are followed. Interest still applies to the unpaid balance.

Even if you’re unable to pay the taxes you owe, filing a tax return or an extension to file can help limit how much you’ll ultimately owe in penalties and interest. Talking to a tax professional can help you save time and money — and don’t forget H&R Block offices are offering free extension filing through April 15.

Jenna Bromberg - Past Contributor

Jenna Bromberg - Past Contributor

H&R Block

Jenna helped manage the national social media programs at Houlihan's Restaurants, Inc. and was a copywriter for all three brands in the HRI family before joining H&R Block.

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