5 Options If You Can’t Afford Your 2024 Tax Bill

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If you underpaid your 2024 taxes, you may be in for an unwelcome surprise, including a 0.5% monthly failure-to-pay penalty and 7% interest on the unpaid amount, based on current IRS rates. Plus, the IRS might turn to garnishments and liens if you remain in tax debt for too long.

The good news is that you can usually work with the IRS to find a way to pay an unaffordable tax bill and avoid the most extreme consequences. You can also look into different borrowing options that at least get you out of debt with the IRS.

Here are five options to consider if you can’t afford your 2024 tax bill.

Request an IRS Payment Plan

While they don’t get you out of penalties and interest, IRS payment plans can help you avoid bigger problems like tax liens or garnishment for your unpaid taxes. 

A short-term IRS payment plan gives you 180 days to pay off a tax debt of under $100,000. Plus, you don’t have to go through an extensive approval process or pay an application fee. 

If you need up to six years to pay your tax bill of up to $50,000, a long-term plan with automatic or manual monthly payments could work. Setup fees range from $22 to $178 depending on the arrangement and application method, though there’s relief for low-income taxpayers.

Check the IRS installment plan page for application options and the rules for getting and staying on a plan.

Try Making an Offer in Compromise

In cases where your financial situation makes it doubtful you can fully pay the tax debt, you might prove your case and make an offer in compromise (OIC) with the IRS. This involves asking to pay a smaller amount, either in periodic payments or a lump sum.

When applying, you’ll need to give the IRS a detailed account of your assets, expenses and income. The IRS will also look for proof of doubt about collecting the taxes or questions about the correctness of the debt. You can appeal with more details if the IRS rejects your initial OIC.

Since many rules apply, check the IRS pre-qualifier tool beforehand to get input based on your financial details and proposed offer amount. Also, be prepared to pay a $205 application fee unless you qualify for a waiver. 

Consider a Tax Relief Firm’s Help

If you’re unsure how to move forward with IRS tax relief options or you want to dispute something, tax relief firms can offer some guidance. For example, they can look at your situation to help you figure out realistic OIC terms, consider IRS payment plan terms or spot tax return errors that might have cost you money. 

However, watch out for red flags that could mean a tax relief firm is trying to mislead you. The Federal Trade Commission warned against companies that charge large upfront or monthly fees, promote special tax relief programs or guarantee wiping your tax debt. 

Use Your Credit Card

If your 2024 tax bill is small or only a short-term issue, you could turn to your credit card. But since credit card rates are usually much higher than IRS penalties and interest, this option is more suitable if you have a 0% interest offer or can earn enough rewards to make it worth it.

Keep in mind that payment processing fees will also apply. According to the IRS, using Pay1040 will cost you 1.75%, while ACI Payments, Inc. charges 1.85%. The minimum is $2.50.

Using a credit card can be the most expensive tax payment option if you’re not careful, so do the math and consider how quickly you can pay off the charge.

Take Out a Personal Loan

Applying for a personal loan might make sense if you have a large tax bill that you prefer spreading across several years and avoid accumulating more IRS penalties. If you qualify, you can get the money relatively quickly from a bank, pay the tax bill with a bank transfer and make fixed payments for the chosen term. 

While Federal Reserve data showed that personal loans have much lower average interest rates than credit cards, you could still end up paying more than with an IRS installment plan. If you go with this option, spend time shopping around for rates, look closely at the repayment terms and beware of personal loan fees. 

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