What Happens If You Can't Pay Your Taxes?

Written By Karrissa Jyles

Your tax bill is due on April 15th…but what if you can’t pay on time? Here’s what you can do about it.

Tax season can be a stressful time of the year whether you’re paying your personal or business taxes. 

But what if you can’t pay your tax burden by Tax Day? What if the amount is more than you’re prepared to pay? No one likes being in debt, especially to the IRS.

Firstly, rest assured that you’re not alone if you can’t meet the deadline. Secondly, and most importantly, you have options to pay your tax bill after April 15th without the extra headache.

Keep reading to learn how.

How does the IRS handle unpaid taxes?

It can be a frightening feeling to be over your head in debt. However, it is perfectly normal and, thankfully, the IRS provides resources to help because of it (which we’ll discuss later on).

Here’s what the IRS does if you can’t pay on time:

Penalties

The IRS applies a penalty of 5% for each month or portion of the payment that is late or unpaid. However, after 10 days of nonpayment, the IRS will send a final notice that includes their right to seize or levy your property, as well as the 5% penalty increases by 1% each month your tax bill remains unpaid. Click here to learn more about penalties.

Interests

The IRS will add interest to your tax burden each day it’s late until your late payment is completed. Any interest is accrued on top of your penalties, as well. The interest rate is subject to change and is determined by the IRS on a quarterly basis.

The interest rate in 2023 on unpaid tax bills is the current federal short-term rate plus an additional 3% each day. You can learn more about interest rates here.

How to pay your taxes after the deadline

While it’s bad news to fall behind on paying your tax bill, the good news is there are a few resources that can make catching up easier.

Here’s what you can do to pay your taxes after Tax Day:

Apply to make payments over time

If you can’t pay your tax bill without breaking the bank, the IRS offers payment plans (known as an installment plan) to extend your due date. 

There are several plans for ranging from free to paid to apply:

  • Pay now: If you choose to pay your tax bill with a one-time payment, your application is free and you’re charged zero interest fees (minus any fees from using your card with the IRS payment processing system). 

  • Pay short-term: Pay your tax bill with a free application under 180 days with interest and/or penalties applied until paid in full.

  • Pay long-term: Pay your tax bill on a monthly basis until paid in full with interest and/or penalties applied until paid in full. The application fee for this option is $31 with the fee waived for low income earners.

Learn more about the IRS’s payment plans here.

Apply for the IRS’s Offers in Compromise program

Another way to pay your late tax bill is to see if you’re eligible for the Offers in Compromise. This program is an agreement between you and the IRS to settle your tax debt for less than the amount you owe.

If you’re approved, you have the option to pay your tax bill in one lump sum or in monthly payments under 24 months. Both options come with an application fee to be determined by the IRS. Read more about the program here. 

Make your tax season checklist to stay prepared

The best way to avoid late taxes is to make your tax season to-do list well ahead of time.

If you need help saving for Tax Day or filing your taxes, download our tax checklist to get started. You can access the checklist by subscribing to our email list here.

Keywords:

  • Can’t pay your taxes

  • Taxes 

  • Tax day

  • Tax bill

  • Tax burden

  • April 15th

  • Late payment

  • Offers in compromise

  • IRS

  • IRS payment plans

Sources:

Karrissa Jyles
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