If you know that you can't pay your taxes right away for whatever reason, then you should consider an IRS payment plan. These plans earn interest but at much lower rates than most credit cards. If your situation is a choice between living on credit or putting your taxes into installments then the IRS is probably the best place to have your debt.
Short Term Payment Plan
A short term payment plan doesn't cost anything to set up but it does require the bill to be paid in 120 days from the filing deadline (April 15). If you file on time, interest charges start after April 15th at about 4% over the course of a year (but will be higher if you file late). After applying for a short-term payment plan, you can pay the amount owed directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card.
Long Term Payment Plan
A long term payment plan costs $31 to set up online, although you might be able to get that waived if you qualify for low-income taxpayer status. This option gives you up to 6 years from the filing deadline (April 15) to pay, and you will have monthly payments that are paid through direct debit, so funds will automatically be withdrawn from your checking account each month. Interest starts after April 15th at about 4% over the course of a year (but will be higher if you file late).
A Few Notes
- If you know you are going to owe taxes (or think you are going to owe), it is still beneficial to file on time (or file an extension), even if you can't pay right away.
- The New York penalty + interest rate is higher than the Federal rates. If you are able to, our recommendation is to pay the NY balance off and set up a payment plan for Federal.
- You can also pay a chunk down on the Federal, another option is to not enter a payment plan but pay on your own terms. You will receive letters for the amounts owed but the interest charges are the same.
- The interest rate varies, but it's typically around 3-4% over the course of a year.
To apply for a payment plan with the IRS, apply here.
Questions? Email us at firstname.lastname@example.org