If you can't pay an unexpectedly large tax bill by the filing deadline, the IRS (and many states) will let you sign up for an installment plan. With an installment plan, you can pay off your taxes through regular payments, often via payroll deduction or by regularly scheduled debits from your bank account. File your return in a timely manner to minimize any additional penalties.
However, before requesting an installment agreement, you should consider other less costly alternatives, such as getting a bank loan or using available credit on a credit card. This is especially true if the interest and penalties imposed by the IRS would be more than the interest on your credit card or a bank loan.
Please note that installment plans do not waive additional costs associated with late tax payments, including:
- Interest on the remaining balance due;
- Late payment penalties and/or late filing penalties;
- Accumulated interest on unpaid late payment or late filing penalties.
Nevertheless, for some taxpayers, installment plans are a convenient way – sometimes the only way – to pay off overdue taxes.
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