Yahoo Finance 10 Ways to Pay Your Taxes This Year
While the majority of tax-filers will receive a tax refund this year, millions of others have to send tax payments to the government by April 17. For tax year 2015, the most recent year available, about 29 million tax returns (19 percent) required payment at time of filing, for a total of about $162 billion in outstanding taxes. That shakes out to an average tax bill of more than $5,500.
If you owe, get familiar with your payment options because while you can get an extension for filing your tax return, you don't get extra time to pay. The only way to know whether you owe or not (and how much) is to prepare your tax return. The sooner you do that, the more time you'll have to make a plan.
[See: Answers to 7 Burning Tax Questions.]
If You Have the Money
Taxpayers have several free and low-cost options for paying taxes to the federal government. Be sure the option you choose allows enough time for the IRS to receive payment before the deadline.
Direct payment from bank account. When you file your taxes electronically -- whether you're using software, working with a tax professional or using IRS Free File -- you'll have the option to pay your tax bill with an electronic funds withdrawal from your bank account. The IRS charges no fees for the transaction, which is processed through the Automated Clearing House network, but check whether your financial institution charges fees for ACH transfers.
You'll provide your account number and routing number and can also schedule a payment date.
[See: 10 Tax Breaks for Retirement Savers.]
Debit or credit card. Many electronic filing systems give you the option of paying with a debit or credit card. Processing fees vary by service provider but can range from 1.87 percent to 3.93 percent if using a credit card. Flat fees for using a debit card start at $2.
Same-day wire. You may have the option of paying your taxes with a same-day wire transfer, but your financial institution likely charges fees for such a transaction. Making a tax payment by wire transfer requires you fill out a same-day taxpayer worksheet and give it to the financial institution you use for the transfer.
Check or money order. If mailing your return to the IRS, you can do a wire transfer or send a check or money order. Be sure to review and follow the IRS directions for filling out the payment and including it with your return.
Cash. The IRS does not accept cash payments through the mail but it offers a cash payment option through participating 7-Eleven stores in 34 states. There's a $1,000 payment limit per day, and each cash payment has a $3.99 fee. Payments take five to seven business days to process.
If You Don't Have the Money
The IRS starts charging interest on unpaid taxes on the return due date, which is April 17 in 2018. Interest accrues and compounds daily on the unpaid tax balance, penalties and interest, until you pay your balance in full. The IRS advises people who cannot pay in full to pay what they can by the deadline. The IRS charges an interest rate of 5 percent on unpaid taxes. The failure-to-pay penalty is 0.5 percent each month the tax remains unpaid, up to a maximum of 25 percent.
Payment plan. The IRS offers short- and long-term payment plans. Short-term plans last 120 days or fewer and have no setup fees, though you will have to pay penalties and interest.
Long-term payment plans, also called installment agreements, last longer than 120 days. Setup fees start at $31 for online enrollment in direct debit payments from your checking account but can cost as much as $225 if you apply by phone, mail or in person and do not wish to enroll in direct debit. Low-income taxpayers may qualify for reduced fees.
It's important to choose a payment plan you can handle because not paying your taxes when due can result in further fees and interest and even a tax lien.
Offer in compromise. Taxpayers may be able to settle their tax debts for less than they owe if they can't make the full payment or if doing so would result in financial hardship. This option requires you to submit an application (with a $186 nonrefundable application fee) describing how much you're offering to pay and a nonrefundable initial payment of either 20 percent of your total offer or your first payment, if proposing periodic payments. The IRS will evaluate your offer based on your ability to pay, income, expenses and asset equity.
Delay collection. You may call the IRS and request it delay collecting your taxes if you're unable to make any payment. You'll need to fill out paperwork before the IRS approves the request, and if it does, know that your tax debt has not gone away. Your debt will grow as penalties and interest accrue and until you pay the full amount.
Credit card. While you will incur fees for paying taxes with a credit card, it may be worth the peace of mind you get from knowing you've paid your debt to the government. Of course, you then have to repay the credit card company. Using a card with a zero percent annual percentage rate introductory period on purchases or balance transfers can help you spread out your payments for no cost, but otherwise, credit cards are an expensive financing tool, with average APRs just shy of 15 percent.
[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]
Personal loan. If you have good credit, you may qualify for a personal loan with an APR as low as about 6 percent, though the average rate on personal loans was 10.57 percent in November, according to the Federal Reserve. While the interest rate on a personal loan may be higher than what the IRS charges, it may be easier to manage than trying to keep track of how the fees and interest accrue on your unpaid taxes. A personal loan may also allow you to spread out your payments over a longer period of time than the IRS payment plans.
More From US News & World Report