If you don’t have enough money to pay the Internal Revenue Service at tax time, it can cause an immense amount of stress. The good news is that there are several options. You may be able to offer an amount in compromise, or you might ask to get put onto a repayment plan.
Some people feel that they don’t want to use the repayment plan, because it makes their taxes “late.” Instead, they feel that putting their tax debt on a credit card or a personal loan is a better idea.
It’s true that you don’t want to owe the IRS money. Failing to pay your taxes does have serious implications. Putting taxes onto a credit card could be a mistake, too, though. Here are two things to consider.
- Credit cards have high interest rates
Unless you happen to have a credit card that offers 0% interest for a specified period of time, the likelihood is that you’re going to pay high interest on any amount you put on your card. While it might make sense to put $500 of tax debt on a credit card, larger amounts could end up costing you hundreds or thousands of dollars in interest before you pay off what you owe.
- The IRS repayment plan is inexpensive (and sometimes free)
If you elect to participate in a short-term repayment plan with the IRS, you will need to pay your taxes off within 180 days. You will also pay accrued penalties and interest until the amount is paid in full. This is compared to the long-term plan, which costs $31 to set up online or $107 by phone, mail or in-person. Low-income parties may have the setup fee waived. You have to pay with direct debit to use this method. You still need to pay accrued penalties and interest.
A second option is to pay without direct debit. It costs $149 to set up the plan online or $225 over the phone. It’s only $43 for low-income individuals when certain conditions are met. Again, there are penalties and interest.
As you can see, there are options, but you need to consider them carefully. Each one has the potential to have its own consequences on your life and finances.