If you’re unable to pay your tax bill in full, there are several steps you can take to manage the situation responsibly:
- File your return on time: Even if you can’t pay, it’s crucial to file your tax return by the deadline. Filing on time helps you avoid the failure-to-file penalty, which can be steeper than the penalty for not paying.
- Request a payment plan: The IRS offers payment options like Installment Agreements, which allow you to pay your tax bill in smaller, more manageable amounts over time. You can apply for this online, by phone, or by mailing Form 9465, Installment Agreement Request.
- Consider a short-term payment extension: If you believe you can pay the full amount within 120 days, you might qualify for a short-term payment plan. This option is generally less formal and doesn’t involve setup fees, although interest and penalties will still accrue.
- Understand penalties and interest: Even with a payment plan, interest and late payment penalties will continue to accrue on the unpaid balance. It’s important to try to pay off your tax debt as soon as possible to minimize these additional costs.
- Explore additional options: In cases of financial hardship, you may be eligible for other relief options, such as an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed, or a temporary delay in collection if you’re unable to pay anything at all.
Remember, filing for an extension only extends the time to file your tax return, not the time to pay any taxes owed. Even if you file for an extension, the payment is still due by the original deadline, which is typically April 18, 2023.