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What Happens if You Can’t Pay Your Taxes?
Although many Americans will receive a tax refund after filing their taxes, you may not be so lucky. If you receive a tax refund, it means that you are owed money because you overspent on taxes the previous year. This is often due to the fact that too much was withheld from your paycheck, but it can be for other reasons as well.
On the other hand, if you don’t receive a tax refund, it could mean that you owe money to the IRS, otherwise known as the Internal Revenue Service. It’s important to take action as soon as possible if you are unable to pay your taxes. Penalties and interest can add up quickly, and it’s important to stay on top of the situation.
If you are under a significant amount of financial stress this year due to the rise of inflation, you are not alone. You may have been counting on your tax refund to save the day and allow you to have an influx of cash. However, if the tables are turned, and you owe the IRS money, then you’ll need to prepare yourself if you can’t afford to pay it back right away. Keep reading to learn more about what to do when you can’t pay your taxes!
What are My Options if I Can’t Pay My Taxes?
If you owe the IRS money and you need to pay ASAP, it can be stressful, but know that you have a few options:
- Contact the IRS and Ask to be Placed on an Online Payment Plan, Which Includes an Installment Agreement
- Pay Your Taxes Late and Incur a Penalty
If you are approved to be placed on a monthly payment plan in installments, there are one of two plans that you can be approved for:
- Short-Term Plan: This option has a repayment period of 120 days or less, and in order to qualify, the amount that you owe the IRS must be lower than $100,000 (including tax, penalties, and interest). You could also consider getting a short-term loan to cover the expense, like a car title loan or personal loan.
- Long-Term Plan: For the long-term plan that is greater than 120 days and expected to be paid in monthly installments, the amount owed should be less than $50,000 in combined tax, penalties, and interest.
If you fail to pay your taxes and incur penalties, be aware that you will be charged a 0.5% penalty for every month the debt remains unpaid, up to a maximum of 25%.
What Should I Do if I Can’t Pay My Taxes?
If you can’t pay your taxes and are struggling financially, don’t panic. The first step to take is to choose how to approach this situation. If you can wait for your next paycheck and the amount that you owe is not incredibly high, you may want to just pay your taxes late and incur the penalty charge. However, if you do owe a sizable amount and you can’t expect to pay it within the near future, then opting for the long or short term payment plans may be the more realistic option.
Still, whether you choose to pay in the short term or pay over time, you are still responsible for repaying what you owe in taxes. If you cannot realistically fit that into your current budget, then you may need to take the appropriate steps to earn extra money.
Earning extra money can be tough, but consider these options to supplement your income and pay back your taxes:
- Get a Second Job: If you have free time in the evenings or on weekends, consider getting a secondary source of income. Whether you prefer to wait tables or build a freelancing business, you can get extra money to pay back your taxes.
- Sell Unwanted Household Items: By either hosting a garage sale or selling valuable goods online through platforms like eBay and Depop, you can earn some extra income when times get tough!
- Reach Out to Friends and Family: If you are having trouble paying your taxes, you may want to reach out to friends and family to see if they will be willing to loan you some money to avoid paying late penalties.