Home > Taxes > I Can’t Pay My Taxes. What Do I Do?

Comments 0 Comments

As much as we’d all like a refund this tax season, not everyone gets money back from the IRS. If you’re not prepared for it, owing money on your taxes can seriously stress your budgets and, potentially, your credit.

If you’re not sure whether you’ll owe or be owed, there’s no better time than now to get started on your taxes. There are advantages to filing early, but if you get started and realize you’re going to have to spend a little extra come April, at least you have some time to come up with a game plan.

Figure Out What You Owe

Perhaps you’ve been getting a little bit more mail lately — start sorting through any tax forms you may have received from employers, financial institutions or healthcare providers in the past few weeks, follow up with anyone who should be sending you one and look into any deductions you need to prepare to claim.

It’s best to approach deductions as a yearlong process (take note of business expenses, make charitable donations here and there), which is all the more reason to get going if you haven’t started yet. Keep an eye out for one of the most loathed tax forms of all, the 1099-C. If you had an outstanding debt canceled in the past, you may receive a form demanding you pay taxes on it. Though you may have to pay, there are also some situations in which you may not owe that money.

Once you have everything collected, start doing the paperwork, for which you can use one of a variety of free and subscription services. You can go the paper-and-pen route with all those forms you collected, or you can use an online service that allows you to save your progress and file when you’re ready. When you get to the point of figuring out what you owe the IRS or how much you will get back, you should consider your next steps.

Explore Payment Options

There are many ways to send money to the IRS and get that pesky tax bill taken care of. If you can afford to absorb your tax payment into your regular budget or savings, you can send a check or transfer the money from a bank account. It’s no fun to bear the extra expense, but it’s a good thing to avoid going into debt over taxes.

Should your bill be more than you can reasonably expect to pay in full by April 15, you can consider paying on a credit card or taking out a personal loan to cover the cost. The key in both these scenarios is to use a product that minimizes the amount of interest you’ll incur, so make your choices wisely. Yes, adding to your credit card debt may hurt your credit utilization ratio (thus negatively affecting your credit scores), and taking out a personal loan results in a hard inquiry on your credit reports (another small ding), but not paying the IRS could result in a tax lien down the road. Paying off those debts should be a top priority once you’ve satisfied your tax obligations.

There’s also the option of entering an installment agreement with the IRS — it’s setting up a monthly payment plan until you’ve paid the full amount you owe the IRS.

The non-option is to not pay: Failing to pay your taxes will result in a tax lien on your credit reports, which is a huge negative and can cause your credit scores to fall off a cliff. We’re talking about a 100-point or so drop, depending on your credit standing. Once you’ve paid it, the lien stays on your credit reports for seven years — however, you can request in writing that the IRS remove it once it’s paid. Ultimately, though, it’s best to spare yourself the credit misery and figure out a way to pay.

Decide on a Plan

Each of your options presents different consequences for your credit profile, so you’ll want to have a good grasp on where you stand before you file. You should check your credit reports regularly to make sure everything is accurate. And looking at your credit scores will show you how your behaviors have impacted your creditworthiness.

For example, if you look at your free Credit Report Card and see low credit scores, you may not have the option of getting a personal loan or low-interest credit card in order to pay your tax bill. Or maybe you’ll see that your credit utilization is low, but find that by paying your taxes with your credit card (therefore increasing your utilization rate), you may negatively affect your credit scores. As you go through the process of paying your debt to the IRS, you can monitor how your progress translates into credit score changes, allowing you to make educated financial decisions in other areas of your life.

Look Ahead

Now that you have a plan for paying your taxes, start thinking about the future. You may want to adjust how much you have withheld from your paycheck for taxes, or perhaps you need to add more to your savings as the year goes on so you can afford to pay your taxes in full next year. It also helps to take the fresh experience of preparing to file your taxes (aka the joyous task of collecting and filling out paperwork), and use it as motivation to keep track of things as the year goes on, so next year’s tax season is less stressful.

More Money-Saving Reads:

Image: IvelinRadkov

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team