How to Pay Off Tax Debt When You Don’t Have the Money Saved
The IRS expects you to pay off your tax debt whether or not you have the money saved. While many tax payers will receive a tax refund, millions of Americans will owe the government. The average tax bill for those who owe the IRS is about $5,500. That’s a huge bill for the majority of Americans who have less than $1,000 in savings.
Here are three ways to pay off your tax debt on time when money is tight.
IRS Payment Plans
The IRS offers short and long-term tax repayment plans for Americans unable to pay off their tax debt by the due date. A short-term plan lasts about 120 days or less, and there are no setup fees. You will have to pay penalties and interest.
If you need a long-term payment plan from the IRS, you’ll be entering into an installment agreement that lasts over 120 days. There will be a setup fee starting at $31 for online enrollment in direct debit payments from your checking account. If you apply for the plan by phone, in person or by mail you could pay a setup fee as high as $225.
Low-income taxpayers may qualify for lower fees, so be sure to check before you sign up for direct debit. Missing your tax repayment date can result in additional fees, interest and/or a tax lien.
One way to pay off tax debt when money is tight is to take out a personal loan. A small loan may be enough to cover your tax debt, and they’re relatively easy to qualify for. If you’re an American citizen, are currently employed, over the age of 18 and don’t have any outstanding personal loans you’ll most likely qualify for a small loan between $100 and $1,200.
Unsecured small loans don’t require credit checks, so you could qualify for funding even if you don’t have a good credit score. You will be charged a fee and interest, so it’s important to review your loan terms and be sure you can make payments before signing a loan agreement. Use a personal loan lender matching service to compare rates from multiple lenders and secure a competitive loan rate.
Another way to pay off tax debt is to use a credit card. As long as your balance allows, you can use your credit card to pay your tax debt online.
There are a few things to consider before using your credit card to pay your tax bill. First, using your credit card to pay a large tax bill could negatively affect your credit score. One of the most important factors in your credit score is utilization. If your tax debt makes you reach your credit limit, or get close to it, your credit score could drop dramatically until you pay down the debt.
The IRS charges credit card processing fees. If you use a debit card to pay the IRS you’re looking at a flat fee between $2 and $2.59. However, if you use a credit card that fee could jump up to 1.99%. With the average tax bill being $5,500, that’s an additional $104.50. You’ll also owe interest to your credit card company if you can’t pay off your debt before your next billing cycle.
In some cases, the IRS will allow you to delay repayment. Call the IRS directly to request a delay in collection if you can’t pay your taxes by the due date. You’ll be required to complete paperwork, and the IRS will need to review and approve your request. If your request is approved, your due date will be postponed, but you will be expected to pay penalties and interest until the debt is paid in full.
If you can’t afford to pay off tax debt by the due date don’t panic. You have options. Do your research, and select the option that’s best for you and your financial security.
This post is not intended to be a solicitation for a loan. Pomo One Marketing, Inc. provides these blogs for entertainment and informational purposes only. Remember to consider all your financial options before making any decisions related to credit.