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- Federal tax payments for 2020 are due on Monday, May 17 for most Americans.
- You should file you tax return even if you can’t afford to pay your taxes.
- The IRS offers short- and long-term payment plans that anyone can apply for online.
- See Personal Finance Insider’s picks for the best tax software »
Avoidance is the worst way to handle tax matters.
If you can’t afford to pay your federal tax bill in full by the deadline, ignoring it will only increase how much you owe. The IRS charges penalties and ongoing interest on unpaid balances.
However, the IRS also understands that some taxpayers experience financial hardship, so there are options for paying your bill in installments or reducing the overall amount you owe.
The deadline for filing and paying federal taxes is May 17 for most Americans. Victims of federally-declared disaster areas, including residents of Texas and Louisiana, have more time.
If you can’t pay your taxes, here’s what to do:
1. File your tax return and pay what you can
The most important thing to do is file your tax return by the deadline. The IRS charges a severe penalty if you don’t file a return and have an outstanding bill, so you can at least eliminate that fee.
Pay as much of the balance as you can, so long as you’re not racking up additional debt on a credit card to do it. Details about how much you owe will be available in your online account once the IRS accepts your return.
An interest charge of 3%, compounded daily, will accrue on your remaining balance beginning the day after the deadline. In addition, a late payment penalty of 0.50% of your balance will apply for each month (or partial month), up to a maximum of 25%.
2. Apply online for a payment plan
The IRS offers two plans that allow you to pay off your balance over time. You can apply for free online and find out if you’re approved or denied immediately.
The short-term payment plan is for taxpayers who owe less than $100,000, including penalties and interest. The repayment period is 120 days (about four months) or less. The 3% interest charge will still apply until your balance is paid in full, as will the 0.50% monthly late payment penalty.
The long-term payment plan, also referred to as an installment agreement, is for taxpayers who owe less than $50,000, including penalties and interest. If your request for this plan is approved, there’s a $31 setup fee (though it can be waived for low-income taxpayers) and payments are due every month.
The 3% interest charge still applies to the unpaid balance, as does the late payment penalty, though it’s reduced from 0.50% to 0.25%.
3. See if you qualify for an offer in compromise
Offers in compromise are reserved for taxpayers in the most dire financial situations, such a bankruptcy. This arrangement allows you to settle your tax bill for less than you owe.
This tool can help determine whether you’re eligible and how to proceed.
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