Don't Write A Tax Check That Your Bank Account Can't Cash: Payment Options Are Available

Tax prep done (check).

Tax return reviewed and signed (check).

Tax return filed (check).

Taxes paid... Er, not so much.

Each year, tens of millions of taxpayers find themselves writing out a check to pay off Uncle Sam. Not all taxpayers can cough up the funds to pay off their tax liabilities by April 15. If your tax bill is more than you counted on, don't panic and do something to make it worse. Instead, take a deep breath and consider these options:

1. Put it on your credit card. I'm generally not a fan of replacing one debt with another. But if your ability to pay is a timing issue - as opposed to a "I simply don't have it" issue - you can pay your federal income taxes by credit card. The IRS accepts all major cards ( American Express , Discover, MasterCard , or Visa ). To make a payment, head over to the payment page on the IRS web site and choose one of the payment processors to pay by phone. The IRS doesn't charge a fee for credit card payments but the processing companies do: the amounts vary from 1.87% to 2.35% of your bill for credit card payments and flat fees of between $2.49 and $3.45 for debit card payments (note that your credit card bills will read "United States Treasury Tax Payment" and the convenience fee paid to your provider will be listed as "Tax Payment Convenience Fee" or something similar). Pay as much as you can upfront since you are limited to two credit card payments for individual income tax payments for the 2013 year. If you're paying more than $100,000 by credit card, you'll need to call 1-888-734-8212. To make a payment of $1,000,000 or greater, call 1-888-889-7228 (you may also need a new tax preparer in that event, just saying).
2. Re-finance your home. Again, I'm generally not a fan of replacing one debt with another (see #1) but even the IRS will recommend a re-fi to pay your taxes if you can afford it. If you have equity in your home, using that equity to resolve your outstanding tax debt may make sense. Mortgage rates remain relatively low and unlike credit card interest, you can deduct home mortgage interest on your income taxes if you itemize. Converting usable assets into usable resources can pay off but only if you can swing it. You don't want to lose your home over a bad tax bill.
3. Enroll in EFTPS. EFTPS is a system for paying federal taxes electronically using the internet or by phone. The best part is that it's free through the U.S. Department of Treasury and you can schedule payments through EFTPS up to a whole year in advance. Scheduling advanced payments is convenient but be careful: EFTPS does not allow you to make immediate payments so the system is better suited for estimated tax payments and other regular tax payments rather than last minute payments (in other words, don't count on it to make a tax payment today). You'll need to submit payment instructions by 8 p.m. EST at least one calendar day in advance of the due date of your payment; if it's your first time using the system, you'll have to enroll and wait for your PIN before you can get started. To enroll, or for more information on enrollment, visit the EFTPS web site or call EFTPS Customer Service at 1-800-555-4477.

   Check Writing (Photo credit: CarbonNYC)
4. Enter into an Installment Agreement. If you can't pay your tax bill all at once, you can apply for an installment agreement with IRS. You don't even have to speak with a real person. If you owe $50,000 or less in combined individual income tax, penalties and interest and you've filed all of your tax returns (if you haven't filed your returns, you'll have to do that before you can sign up for an installment agreement), you can apply for an installment agreement online to pay in monthly installments. You can also apply for an installment agreement by mail using federal form 9465-FS, Installment Agreement Request (downloads as a PDF). It's not a free pass: there is a fee of $120 to apply though if you agree to pay by direct debt, the fee is less than half of that (just $52). Be aware that the IRS will charge interest during the agreement and will also seize any refund to which you would otherwise be entitled while you're in repayment. If you owe more than $50,000 or your taxes are other than individual income taxes, the rules are a bit different: check with the IRS directly in that event.
5. Consider an Offer in Compromise (OIC). An OIC allows you to settle your tax debt for less than the full amount you owe. The IRS considers a host of circumstances including the ability to pay; income; expenses; and asset equity. Generally, the IRS will only agree to an OIC if they determine they will not be able to collect the amount due within a reasonable period of time. The reality is that everyone who owes has an excuse and the IRS is looking for a good one before they cut you a break: most offers are actually rejected (anecdotally, up to about 80% of offers tend to be rejected). As with the installment agreement, you must be current with all filing and payment requirements and you are not eligible if you are currently in an open bankruptcy proceeding. There's a hefty, non-refundable fee of $186 to apply for the OIC. In addition, you'll need to be prepared to submit a lump sum of 20% of your tax due or the equivalent of a monthly payment upfront. Don't believe everything that you see on TV: there are strict standards for an OIC. You may want to use the IRS' Pre-Qualifier online tool to see if you qualify and to calculate a preliminary offer amount.
6. Ask for additional time. Based on your circumstances, you may be granted a short additional time to pay your tax in full. A brief additional amount of time to pay can be requested through the Online Payment Agreement (see #4) or by calling 800-829-1040.
7. Finally, consider making a partial payment. A little something is better than nothing. The more you pay now, the less penalty and interest you'll owe later. If you choose to mail a partial tax payment, make your check, money order or cashier's check payable to U.S. Treasury. Be sure to write your name, address, daytime phone number, Social Security number, the tax form number (for example, 1040 or 1040EZ) and the tax year on the memo line. Be sure to mail your payment to the correct address. Then follow-up immediately with one of the above options in order to resolve your outstanding liability.

If you are insolvent or unable to pay due to circumstances beyond your control (for example, unemployment or disability), the IRS is willing to work with you. Give them a call at 1.800.829.1040 or using the phone number on any notice that you might have received in the mail. Help is available.

No matter your circumstances, there are a lot of opportunities to resolve your outstanding tax liabilities. Take advantage.

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