Updated for tax years 2023 and 2024.
It’s no secret that tax refunds get the spotlight each tax season. But many Americans end up owing the Internal Revenue Service (IRS) money after they file, and this tax season is no different. Fortunately, the IRS provides convenient ways to pay your tax bill even if you don’t have the cash on hand when it’s due. The agency offers a variety of payment plans to help you tackle that debt. Let’s take a look at your options.
What happens when you don’t pay your tax bill on time?
If you fail to pay and file your tax return by the deadline, you may owe two penalties.
- Failure-to-file penalty: Generally, you will owe 5% of the unpaid taxes for each month you are late filing. The penalty maxes out at 25% of your unpaid taxes.
You could apply for a tax extension, which gives you six more months to submit your return. However, this method does not give you more time to pay any taxes you owe. - Failure-to-pay penalty: You will owe 0.5% of your unpaid taxes for each month or part of the month you fail to pay (think of it as an interest payment). This can also build up to 25% of your unpaid taxes.
One thing many individual taxpayers don’t realize is you can file your taxes even if you can’t pay your tax bill. The IRS recommends that you file your taxes on time to avoid the failure-to-file penalty and then pay as much of your tax bill as possible before the April due date. Next, you should be proactive about setting up a payment plan for the remainder of your debt to Uncle Sam.
IRS tax payment plan options
The IRS offers online payment agreements for those who cannot afford to pay their entire tax bill upfront. This will allow you to schedule payments over a certain period, depending on your chosen plan. Your payment amount and payment date will depend on the length of your payment plan and how much tax you owe.
Here are your options when it comes to paying your tax bill:
Pay Now: The IRS makes paying your tax bill immediately simple and free for those who can do so. Head over to irs.gov/payments to start. You can pay with IRS Direct Pay, which takes the money directly from your bank account. You can also use the Electronic Federal Tax Payment System (EFTPS) via the internet or phone.
Short-term payment plan: If you owe less than $100,000 and can pay your tax bill in 180 days or less, this payment option is for you. You can apply online, in-person, by mail, or by phone and set up automatic payments from your checking account for no additional fee. You must also pay any accrued penalties and interest until your balance is fully paid. Other payment options include a check, money order, or debit/credit card, but processing fees apply when paying with a card.
Long-term payment plan (installment agreement): If it will take you more than 180 days to pay your tax bill plus any penalties and you owe $50,000 or less, a long-term payment plan may work for you. You have two options when making an installment agreement request:
- Direct debit: You pay a $31 set-up fee and agree to automatic withdrawals for your outstanding balance plus penalties and interest until paid in full. If you qualify as low-income, the setup fee is waived.
- Non-direct debit: You make non-automated monthly payments by Direct Pay, check, money order, or debit card/credit card. This option has a $130 setup fee ($43 if you qualify as low-income). Card payments will also result in a fee.
Offer in Compromise (OIC): An OIC lets you settle your tax debt by paying less than the total amount due. This option is only available to those who can’t pay their bill in full or for whom paying their tax debt will create a significant financial hardship. You can check with the IRS online tool to see if you pre-qualify for an OIC and discuss your specific situation to determine if you can work out a deal.
Don’t rely on credit cards to pay your tax bill.
It’s usually best to avoid paying your tax bill with a credit card if you can’t immediately pay it off. As of early April 2024, the average credit card annual percentage rate (APR) is 27.89%. Financing that debt at a high interest rate means you pay a lot more in the form of interest, and it will likely take you longer to be debt-free. Instead of using a credit card, consider applying for an online payment agreement with the IRS. While you will still owe applicable penalties and interest, the interest rates are typically much lower and should save you more money than your average credit card in the long run.