You complete your tax return and are surprised to find that back taxes are owed but there is not enough cash in the bank to pay the amount due on time: Suddenly, the realization sets in that you will be subject to IRS penalties and interest. Feeling powerless, you are motivated to discover alternatives for making your IRS payment.

In this post, I go over 6 actionable options for settling with the IRS if you must file back taxes or owe the IRS back taxes.

How should you handle an IRS debt?

Knowing your alternatives can help you decide what to do when you owe the IRS money. The following strategies are some of the most popular options for those who owe money on IRS back taxes but are unable to pay.

1. Establish a payment plan with the IRS.

A payment plan is an arrangement you establish with the IRS to pay the taxes due over an extended amount of time. The kind of arrangement you qualify for will depend on your circumstances. It includes things like how much you owe in back taxes and when you can make the remaining payments. A long-term payment plan should be requested if you think you’ll be able to finish paying your taxes in full by the extended deadline. Payments are made monthly for the balance outstanding.

• Cost: If you pay through with automatic monthly payments from your checking account and apply online, the setup fee is $31. Applying by phone, mail, or in person comes with a setup fee of $107.
• If you apply online and elect to make a monthly payment directly from a checking or savings account (Individuals only), electronically online or by phone using Electronic Federal Tax Payment System (EFTPS), or via check, money order or debit/credit card there is a $130 setup fee. If you apply by phone, mail, or in-person there is a $225 setup fee
• For low-income taxpayers with modest incomes, the fee is waived or reduced to $43 according to how you apply and make monthly payments for IRS back taxes.
• What must be done: If you are an individual taxpayer, it is best to apply online for a Collection Information Statement report that is not required of individuals for payment plans of $50,000 or less. If you owe more than $50,000, it may be best to hire a CPA or tax specialist to analyze your problem and negotiate your payment.
• Benefits: Avoid accumulating moreinterest and penalties, offset of your future refunds, and difficulties getting loans.

2. Request a brief timeframe to pay the back tax bill

A short-term payment plan can be requested online or by phone, mail or in person if you are able to pay the back taxes owed in 180 days or less.  There is no fee associated with this method, however penalties and interest accrue until the balance is paid in full.If you don’t pay your tax, fines, interest, or additions to tax by the due dates, the IRS will assess an underpayment penalty. Even if you submit an extension, the underpayment interest still applies.

3. Obtain a Temporarily Delay in the Collection Process due to Financial Hardship.

The IRS may report your account is currently not collectible and temporarily halt collection efforts until your financial situation improves if it deems that you are unable to pay any of your tax debt. The IRS has determined that you cannot afford to pay the obligation at this time, thus being currently not collectible does not imply the debt disappears.

The IRS may require you to fill out a Collection Information Statement (Form 433-F, Form 433-A or Form 433-B and provide documentation of your financial situation before approving your request to delay collection (this may include information about your assets and your monthly income and expenses).

4. Apply for a personal loan for back taxes help

If you owe the IRS money and are not able to pay it, you might want to think about getting a personal loan to pay your taxes.

However, it’s crucial to comprehend the charges associated and how personal loans operate.

Let us go through how personal loans work.

When you apply for a personal loan to pay taxes, you’re asking a lender like a bank or credit union to lend you money to cover the cost.

If you are given the green light, you’ll make regular installment payments to pay off the personal loan and interest.

This can be a tempting alternative since you might be able to acquire a cheaper interestrate than you would, say, with a credit card, depending on your credit reports, income, and a variety of other factors.

Reasons to think about a personal loan to pay taxes

• Monthly payments, loan terms, and interest rates are frequently predictable.
• You can apply for a loan that is unsecured and not secured by assets, such as your home.
• It might be less expensive than a credit card or IRS payment plan.

Cons of taking out a personal loan to pay taxes

• You will be taking on debt.
• Your credit scores may dip once you are in debt or if you make a late payment on the loan.
• You may pay more in interest with a personal loan than with an IRS repayment plan.

5. Get A 401(k) Loan to Pay Your Taxes.

Ninety percent of 401(k) participants have the option of borrowing against their account balance, and about 11% do so annually. On the other hand, you cannot borrow money against an IRA. So, should you borrow from your 401(k) to pay your taxes? Maybe.

Simple Access Without Financial Risk

• A 401(k) loan is a very simple way to access money without putting your finances in danger.

401(k) loan drawbacks

• borrowing money through your 401(k) plan might be a quick and affordable way to cover any taxes you owe now or in the past. If you do not return a loan, it might harm your pension funds in the future.
• When you do not complete regular payments of back taxes, quit your job without paying off the loan, and your plan expires, the loan is considered a prohibited payout. A taxable payout is also subject to the 10 percent premature transfer penalty unless you’re under 59.5 years of age.

6. Use your debit or credit card to pay IRS back taxes.

There are several commercial entities for this choice that offer back tax help.

• Fees or costs: Vary; typically, between $2.49 and $3.95 (bank card) or 1.87 to 2.35 percent of the outstanding tax debt (credit card).
• Benefits or drawbacks: This payment is practical and allows taxpayers with back taxes help and more control and repayment flexibility.
• It gives excellent IRS back tax relief. They might also earn points, mileage, or other incentives with their credit card.

A higher account balance, meanwhile, could negatively influence your credit rating, and those with overwhelming consumer debt might not want to pay using credit.