Please note that this section covers United States taxes only.
Sometimes the IRS asks for a little more than you were expecting, or you neglected to file your taxes in previous years and now find yourself drowning in owed taxes. If you can’t afford to pay out your federal or state owed taxes by April 15th of a given year, you generally have three options:
Whatever you do, pay your taxes. Non-payment will result in a tax lien, which will take a large, semi-permanent chunk straight out of your credit score. Trust us, the consequences of non-payment are much worse than setting up a payment plan.
The IRS has a negative rep, but they are always willing to accommodate financially struggling taxpayers as long you are upfront and willing to accept their terms. Finding yourself in a situation where you are unable to pay your taxes is scary, but attempting to ignore the problem will only cause it to escalate in the future.
When you sign up for a tax payment agreement, it will be treated very similarly to any other kind of debt payment. The IRS will determine a minimum monthly payment toward your tax debt, and if you do not meet these payments you will be at risk of defaulting. Any future tax refunds will be applied directly to this debt until it is paid in full. In many cases, the IRS will also waive fees or interest associated with this payment plan once you have paid your debt in full.
Tax Debt Checklist: