How do you handle an unexpected tax bill?

Here are five ways to handle an unexpected tax bill: Pay what you owe or what you can by the due date. Ask for a payment extension. Establish a short-term payment plan Borrow money where you can. Make sure your W-4 information is correct.

How do I dispute a tax bill with the IRS?

According to the IRS website, you can dispute a tax bill by notifying the IRS supervisor within 30 days of receiving the bill and then completing Form 12009. You can then request an Informal Conference and Appeals Review. If these options don't work you may request that your case be forwarded to the Appeals Office.

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What To Do If You Receive An Unexpected Tax Bill From The IRS

August 1, 2023

5 min Read

Written by Caitlyn Moorhead

Edited by Nick Friedman

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Tax returns are inevitable, but even when you’ve done your due diligence and filed your income taxes sometimes a sneaky tax debt will pop up when you least expect it. Whether it’s a federal tax or property tax bill, when you weren’t planning on the expense it can hit you pretty hard in the pocket. Though it may be tempting just to write off the personalized tax bill as a mistake, it is best to address it head-on to avoid further interest or penalties being tacked on.

Read: What To Do If You Owe Back Taxes to the IRS

5 Best Ways To Handle a Surprise Tax Bill

Filing your taxes is simply a way to pay what you owe to the government and then go on about your business. However, if there has been an error with your tax software or a change in your local interest rates, you may receive a different notice from what your online payment agreement suggested. If you do get an unexpected tax bill, worry not. Here are a few ways you can approach it:

Pay what you owe or what you can by the due date.
Ask for help with a payment extension or debt relief.
Establish a short-term payment plan
Borrow money where you can.
Make sure your W-4 information is correct.

1. Pay What You Owe or What You Can by the Due Date

Making sure to pay what you owe by the deadline will help you avoid payment penalties. If you can’t pay the full amount, at least pay as much as you can to avoid higher interest fees. To help optimize your payments, you can use a credit card with a lower APR than the penalty and interest rate of the IRS and use that to pay your balance to save some money in the long run.

2. Ask For Help With a Payment Extension or Debt Relief

If you don’t have all the funds required to pay your new tax bill, you could get help from tax resolution experts such as Tax Relief Advocates, or TRA. These experts can help you with tax resolutions such as:

Offer in compromise
Payment extension
Help with tax audits
Reducing your tax debts
Preventing wage garnishment or bank levies

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3. Establish a Short-term Payment Plan

Though there is a small fee to set up a monthly payment plan with the IRS, it will still be cheaper than the penalties or fees you would incur by missing the tax deadline altogether. Paying in installments will help you ensure you get out of tax debt sooner rather than later, as well as not strap you completely by paying in one lump sum.

4. Borrow Money Where You Can

You might have access to more money than you think, and to avoid paying back higher fees or penalties with the IRS, you could take out loans on your existing assets. One of the best ways to borrow in a pinch is from friends and family, but if that isn’t an option you can take out a home equity loan or even borrow from your 401(k).

5. Make Sure Your W-4 Information Is Correct

Whether it is a filing error or you’ve gone through some major life changes, you want to always make sure your W-4 form on file is up to date. The details in this form will determine what money is withheld and what you will owe from each paycheck throughout the year. Here are some common things you will need to update:

Mailing address
Marital status
Employer
Employer benefits
Income information
Preferred deductions

Final Take

Avoiding your taxes in the short term will only create long-term financial problems for you and possibly even deeper debt. The most common reason for receiving a bill from the IRS is if you did not pay your taxes in full when you filed. If you cannot pay your full bill you can ask for an extension, payment plan or even work with a tax resolution company like Tax Relief Advocates to help with lowering your tax debt.

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FAQ

Here are the answers to some of the most frequently asked questions about unexpected tax bills.

How do you handle an unexpected tax bill?
- Here are five ways to handle an unexpected tax bill:
  - Pay what you owe or what you can by the due date.
  - Ask for a payment extension.
  - Establish a short-term payment plan
  - Borrow money where you can.
  - Make sure your W-4 information is correct.
How do I dispute a tax bill with the IRS?
- According to the IRS website, you can dispute a tax bill by notifying the IRS supervisor within 30 days of receiving the bill and then completing Form 12009. You can then request an Informal Conference and Appeals Review. If these options don't work you may request that your case be forwarded to the Appeals Office.