This year, many Americans were shocked when they finished filling out their tax returns.
The new tax laws brought a bigger paycheck for many, but a shock at tax time. Most Americans did not adjust their tax withholding preferences to account for the changes in tax law.
Many enjoyed their larger paychecks until it occurred to them that their refund would be affected. Some of those who were expecting a refund were surely disappointed to learn they wouldn’t be receiving one.
And then there were the ones who receive an unexpected tax bill.
Failing to plan in advance put many Americans in a bind this tax season. If you received a tax bill and aren’t sure what to do, keep reading.
We’ll help you figure out what to do whether you can or can’t afford to pay your tax bill.
If You Can Pay Your Tax Bill
If you received a tax bill like many other Americans and you can afford to pay it, you have several options.
These options are either free or low cost. Whichever option you choose, it’s important to remember that you cannot extend the due date of your tax bill.
You can file an extension for extra time to file your return, but you don’t get extra time to pay.
Pay By Check/Money Order
If you are planning to file your tax return by mail, you can wire your payment or send a check or money order.
The IRS provides directions for filling out the check or money order. You will send it in by mail with your return.
Pay by Same-Day Wire
You can also pay your tax bill by wiring the money to the IRS.
You will have to do this through your bank or financial institution. They will probably charge you a fee for the transaction.
If you choose to pay with this method, you may also need to fill out a “same-day taxpayer” worksheet and provide it to your bank or financial institution when you request the wire transfer.
Pay Directly with a Bank Account
This is an easy and usually free way to pay your tax bill.
As long as you file your taxes electronically, you can have the money owed directly withdrawn from your bank account.
The IRS does not charge for this transaction, but the funds are processed through the Automated Clearing House (ACH) network and your bank might charge for ACH transfers.
Pay with Cash
You can pay your tax bill at select 7-Eleven stores in 34 states.
Cash payments cannot be made through the mail. There is a payment limit of $1,000 per day and each payment comes with a fee of $3.99.
Payments made with cash take 5-7 business days to process.
Pay with Debit or Credit
Finally, you can pay with a debit or credit card if you are filing electronically.
If you use a credit card, you may pay a processing fee that is a percentage of the amount charged. If you pay with a debit card, you might be subject to a flat fee.
If You Can’t Pay Your Tax Bill
If you received a tax bill that you can’t afford to pay, don’t panic.
There are options, but you need to act quickly. The IRS will start charging interest on your bill on the day your return is due.
If you can’t pay in full, you should at least pay what you can by the due date.
The interest rate charged by the IRS is 5%. They also charge a failure to pay penalty. This fee is .5% each month up to 25%.
If you can’t pay your bill, there are IRS payment plans that you can sign up for.
The IRS offers short term plans that can last up to only 120 days. These plans come with no setup fees but do not waive penalties or interest that you will accrue.
Long term payment plans are also called installment agreements. These come with setup fees that may be reduced for low-income taxpayers.
You want to be sure you choose a payment plan you can commit to or you may be subject to additional fees, interest, and a tax lien.
Request a Collection Delay
If you cannot make any payments, you can call the IRS and ask them to delay collecting your taxes.
They will have to approve your request and you will have to fill out paperwork. Your debt will not go away and you will still incur penalties and interest.
Make an Offer in Compromise
If you can’t pay your tax bill or if doing so would result in undue financial hardship, you may be able to settle your bill for less than you owe.
You will need to submit an application, which comes with a fee, propose a payment amount, and make an initial payment. The IRS will review your application and decide whether to accept, reject, or counter your offer.
If you are considering making an offer in compromise, you should consult a tax professional or a tax attorney.
Pay by Credit Card
As discussed above, if you file your taxes electronically you can pay via credit card.
It can give you peace of mind to know that you don’t have an outstanding bill from the government, but paying with a credit card can be costly.
Consult a Professional
If you are having trouble paying your tax bill, you should consult a tax professional.
He or she will be able to suggest the best tax payment plan for your personal circumstances. Remember to plan ahead and adjust your tax withholding to ensure you do not find yourself with a surprise tax bill next tax season.
For more information on who to talk to about your taxes, read this article.