needs Kasheesh
Struggling to pay your taxes to the IRS? There are various routes you can take, and this guide will help you decide the best one for you. The 2023 tax filing deadline was April 15, 2024. While many Americans received refunds, an increasing number owe money, rising from 39% in 2021 to 43% in 2023, according to Civic Science.
If you can’t cover your tax bill, consider these options: IRS payment plans, paying with credit cards, and tax debt relief services.
IRS Installment Plan
If immediate payment isn't possible, the IRS offers installment plans. Although interest and penalties apply, these plans help avoid harsher consequences. A short-term payment plan allows up to 6 months to settle your debt, with a 0.5% monthly failure-to-pay penalty and accruing interest until the balance is paid off.
For those needing more than six months, long-term payment plans are available, but they come with additional hefty fees. The penalty remains at 0.5% per month. Setting up automatic monthly payments online incurs a $31 fee, while doing so by phone, mail, or in person costs $107. Opting for manual payments means a $130 fee online or $235 through other methods. Long-term plans let you determine the monthly payment amount, provided the debt is cleared within 72 months.
Applying for an Offer in Compromise
If you believe you can’t pay the full tax bill, you can apply for an offer in compromise (OIC) to settle for less than the amount owed. The IRS evaluates OICs based on income, expenses, and payment ability. However, approvals are quite rare: only about a third of the 36,000 applications in 2022 were accepted.
Accepted OICs can be paid in a lump sum within five months or through periodic payments over 24 months.
Paying with a Credit Card
Using a credit card can help you avoid IRS penalties and interest, though it might lead to higher APR and additional debt. A 0% APR introductory offer credit card can be a solution, giving you time to pay off the debt without interest. This is advisable only if you can clear the balance before the introductory period ends; otherwise, you'll face higher interest charges.
The Wells Fargo Reflect card offers a 0% APR for 21 months on purchases and balance transfers (with variable APR of 18.24%-29.99% after). The Amex EveryDay card has a 15-month 0% APR (then 18.24%-29.24%) and offers a 10,000-point bonus if $2,000 is spent in the first six months. Note that the IRS charges a service fee for credit card payments, which varies by card type and amount, but there are ways to circumvent or minimize the IRS credit card service fee.
Splitting Your Tax Payment Between Multiple Credit Cards
If you don’t have a high enough credit limit to cover all the taxes you owe on a single card – or if you don’t want to max out a card and increase your credit utilization, which might damage your credit score – another helpful option is to use the payment service Kasheesh to split your tax payment between two or several cards. This method can make managing large tax payments more flexible and affordable.
Kasheesh is a financial technology which allows you to split any payment across up to five credit and debit cards. The way Kasheesh works is that it lets you generate a digital debit card which is funded by your selected cards. Since it’s a debit card it also helps you avoid the higher credit card service fees charged by the IRS.
Conclusion
If you're unable to pay your taxes, several financing options are available. Weigh the pros and cons of IRS payment plans, 0% APR credit cards, splitting the payment between multiple cards, and other strategies to determine the most suitable financial solution.
