Seeing a large amount owed for your tax bill can be incredibly stressful, especially if you don’t have the funds readily available to pay in full. Unfortunately, many taxpayers find themselves facing a painful tax bill each year that their current finances can’t cover.
If you’ve received a large tax bill that you realistically can’t afford to pay right now, don’t panic. You have options. The IRS provides various relief programs and payment plans to taxpayers struggling with tax debts.
This guide will explain useful strategies for handling a large tax bill that exceeds your current means. We’ll go over payment extensions, installment plans, borrowing against your assets, requesting penalty abatement, and negotiating an offer in compromise.
Ask the IRS for an Extension to Pay
If you received a large tax bill you can’t afford first consider requesting an extension of time to pay. The IRS may grant you up to 120 additional days to send payment if you can show reasonable cause. This prevents harsh late payment penalties from accruing.
To request an extension, complete IRS Form 1127 and explain your situation Reasons like unemployment, medical expenses, dependent care costs, or credit card debt are often approved The extension gives you time to rearrange your finances and fully pay the liability. Just be sure to send the form before the April tax deadline.
Set Up an Installment Agreement to Pay Over Time
One of the most common ways to resolve a large outstanding tax bill is through an installment agreement with the IRS. This allows you to pay your full balance due over time in smaller, fixed monthly payments that work with your budget.
The IRS offers short-term payment plans of 120 days or less with minimal setup fees. For longer term installment plans of over 120 days, setup fees apply but are spread across your payments without interest accrual on your balance.
You can apply for an IRS installment agreement online or by phone based on how much you owe. The IRS looks at your income, expenses, and debt to determine an affordable payment amount each month.
Explore Personal Loans to Pay Your Tax Bill at Once
If you have good credit, taking out a personal loan to pay your tax debt in full upfront could make sense. This allows you to pay the IRS right away before late fees or interest accumulation.
Borrowing against your home equity line of credit (HELOC) or using a 401K loan are other options. Compare interest rates and shop around to find the most competitive loan terms. Make sure to only borrow what you can realistically pay back on time.
Having the funds to pay your tax debt immediately can help avoid IRS collection actions down the road Just be cautious when borrowing and add up all costs over the loan’s lifespan
Request Penalty Relief Due to Hardship
If you genuinely cannot afford the large tax amount you owe, consider requesting that the IRS abate your failure-to-pay penalties. To qualify for penalty relief, you must prove financial hardship.
Submit Form 843 with documentation of your inability to pay. Explain special circumstances causing your hardship like medical problems, unemployment, dependent expenses, etc. If approved, the IRS will eliminate late payment penalties, though interest will continue accruing.
Penalty relief won’t make your balance go away but can help reduce what you owe if you show paying in full would be a burden. The IRS may still set up an installment plan for the remaining tax owed.
Negotiate an Offer in Compromise Settlement
For taxpayers with severe financial limitations unable to fully pay their tax debt within the IRS collection statute, an Offer in Compromise could be an option. This program allows you to negotiate a reduced settlement amount as payment in full.
You’ll complete a comprehensive financial worksheet documenting your monthly income, expenses, assets, and liabilities. Based on your financial data, the IRS calculates a reasonable amount they’d be willing to accept as payment.
Approval is difficult to obtain and you must adhere to strict requirements when submitting an offer. The process is complex so seeking guidance from a tax professional is highly recommended. If approved, your tax debt is considered fully settled.
Speak with a Tax Attorney or Enrolled Agent for Guidance
Managing a large IRS tax bill can be convoluted, frustrating, and downright scary. Fortunately, tax resolution experts can help guide you through the process. Speaking with an attorney, CPA, or enrolled agent can provide professional advice and relief.
A tax pro has extensive knowledge of IRS procedures and options available to taxpayers with unpaid liabilities. They can review your case and pinpoint the optimal strategies to resolve your specific tax debt. Having an expert in your corner can remove some uncertainty during such a stressful time.
Other Tips for Addressing Your Tax Bill:
-
Request a 60-day grace period to address the balance without collection activity.
-
Ask about applying recent tax refunds to your outstanding liability.
-
Take out a home equity loan with tax-deductible interest to pay off the IRS.
-
Liquidate stocks/bonds or other assets to raise funds.
-
Boost your income by taking on side work or selling household items.
-
Seek free tax help from Volunteer Income Tax Assistance (VITA).
-
Set up a crowdfunding campaign or borrow from friends/relatives.
Seek Assistance to Handle Your Tax Debt
Facing a large, unaffordable tax bill can certainly feel overwhelming and stressful. But you have more options than you think. The IRS provides various payment solutions like installment plans, extensions, and penalty relief to aid struggling taxpayers. And working with a tax expert provides professional guidance tailored to your situation.
Don’t ignore IRS collection notices. Call right away and explain your inability to pay the full amount now. Take advantage of IRS relief programs and alternative resolutions that match your budget. If you address your tax debt responsibly, you can put together a manageable plan and move forward.
Short-term IRS payment plan
This repayment plan, offered through the IRS, gives you 120 extra days to pay off your tax bill.
However, this extension comes with a few stipulations you should know about:
- You’ll be charged interest and other penalties while you’re repaying, so it’s best to pay it off ASAP rather than wait the full 120 days.
- You need to owe less than $10,000 in combined tax, penalties, and interest to qualify.
Note: There’s no setup fee for the short-term payment plan — just the interest and penalty charges you’ll pay on top of your balance.
Long-term IRS payment plan
Also known as an installment agreement, this payment plan is likewise done directly through the IRS for taxpayers who need more than the 120-day extension to pay off their bill.
To set up a long-term payment plan, you must tell the IRS how much you can realistically pay each month. Then, the IRS either approves or denies your request. To qualify, you need to owe $50,000 or less in combined tax, penalties, and interest.
You’ll also pay interest and penalties on top of your balance, just like the short-term payment plan. However, unlike short-term plans, long-term payment plans have a setup fee, which could be reduced or waived based on your payment method or income.
Yes, you can pay your income taxes with a credit card, but it comes with a cost.
Legally, the IRS cannot accept credit cards for tax payment. So instead, the payment can be done through a third party, which then charges you a processing fee (amounting to a small percentage of your total payment).
Keep your credit card’s interest rate in mind before using it to pay off your taxes. Credit cards have comparatively higher interest rates than other borrowing methods, so make sure you don’t trade in one problem for another in credit card debt.
On a positive note, paying with a credit card — instead of using an IRS payment plan — means avoiding the IRS penalties mentioned above. You’ll be all settled with the IRS; therefore, the only charges will be the third-party processing fee and any interest incurred via your credit card.
Having repayment options is great, especially when dealing with a large, stressful tax bill. That’s why it’s important to pay as much as you can at the tax deadline, then figure out the best way to cover the remainder through the other means outlined here. Remember to be totally honest with yourself about how much time you’ll need to pay off your balance so you can find the right terms for your unique situation.
Options for paying a large tax bill
How can I make a tax payment online?
To make a tax payment online, you first need to create an IRS Online Account. Once you have an account, you can view your payment details, payment history, and make a same day payment from your bank account for your balance, payment plan, estimated tax, or other types of payments. Go to ‘Your Account’ to get started.
How can I pay my taxes?
You can pay your taxes using your bank account, debit or credit card, or digital wallet through the IRS website. For individuals only, no registration is required, and there are no fees from the IRS. Schedule payments up to a year in advance. To pay, use Direct Pay (for individuals and businesses, excluding payroll tax deposits, processing fees apply).
How can I make a monthly payment to the IRS?
The IRS provides several options for making monthly payments: You can make a payment with cash at a retail partner (for all accepted payment methods, see Payments). The IRS charges a user fee for payment plans, but this fee may be reduced or waived for low-income taxpayers when certain conditions apply.
How do I make a high-dollar payment?
High-dollar payments must be coordinated with the service provider. To make a payment of $10,000,000 or greater through the Link2Gov Corporation, call 866-734-8212. To make a payment of $1,000,000 or greater through WorldPay US, Inc., call 855-508-0159. To make a payment of $1,000,000 or greater through ACI Payments, Inc., call 888-889-7228.