Very few people actually enjoy filing their annual tax return, but everyone loves getting to the end of the process and figuring out how much money they get on their tax refund. 

Not everyone gets a refund, however. According to the United States Government Accountability Office, 21%of Americans ended up owing taxes on their 2019 returns, compared to 18% in 2018. 

If your tax return shows you owe money to the IRS, you might feel panicked, especially if you’ve never had to pay the IRS before. Sadly, many people have good reason to be afraid.

While the IRS doesn’t release information regarding the average amount people owe, many people have reported owing thousands of dollars they weren’t expecting to pay. It’s an amount many Americans just don’t have on hand.  

Fortunately, if you owe the IRS money you don’t have to sell off everything you own or go into bankruptcy. In fact, you have several options at your disposal.

Request a Short-Term Extension

If you think you can pay the amount you owe in 120 days or under (about four months) you can request a short-term extension from the IRS. There's no fee for requesting the extension, and you can fill out the payment agreement online, contact the IRS by phone or contact a CPA to fill out the form on your behalf.

This isn't a perfect solution, though. The IRS will charge you a late-payment penalty of 0.5% on the taxes you owe each month or part of the month that the tax remains unpaid.

In addition, they'll also charge you interest on the amount that you owe. What the amount of interest is varies, but it's usually the short-term federal rate plus 3%. As of April 2020, this would mean you'd be paying 5% interest—and it's compounded daily.

Set up an Installment Agreement

If you need longer to pay your taxes, you can set up an installment agreement with the IRS. You'll have to work out the details of the agreement with the IRS, which will consider how much you owe and how soon you can pay off your balance when determining the type of agreement you can get.

In order to apply for an installment agreement, you'll need to fill out either an online payment agreement, or a Form 9465. You'll have to pay a fee, although low-income taxpayers will only have to pay a lesser fee (after they fill out Form 13844). You can also make payments electronically at a discounted rate as well.

If your debt is over $50,000, you'll have to jump through some additional hoops, but at that point the IRS will let you set up payroll deductions in order to make your life easier.

You should know the IRS will charge you late fees and interest. They will still charge you the short-term federal rate plus 3% interest compounded daily on the amount you owe, but the penalty on the amount you still owe is only 0.25% each month or part of a month that your balance remains unpaid.

Apply for a Hardship Extension

Despite popular belief, the IRS isn't heartless. If you suffering from financial hardship, you can fill out Form 1127 and ask for an extension due to undue hardship. The IRS requires you to include a statement of your assets (things you own) and liabilities (things you owe money on)  to make sure you actually are suffering financial hardship.

If the IRS does determine you're suffering from financial hardship, they'll either put your balance into currently not collectible status, meaning that the IRS won't require you to pay your taxes until your financial situation improves, or they'll make you an offer in compromise where you can settle your tax debt without having to pay the full amount.

While both of these financial hardship statuses can give you the time you need to get back on your feet, they do not let you off the hook. Penalties and interest will still accrue on your "currently not collectible" balance, and the IRS will file a tax lien as a matter of public record if your balance is over $10,000. The IRS will also put any future tax refunds toward your balance until it is paid off, and it will expect you to make payments on the tax you owe as soon as you're able.

Offers in compromise seem better than a currently not collectible status at first glance, but they come with a fee and a down payment to the IRS. You should make very sure you qualify (and preferably get a tax professional's help to do so), otherwise you might end up paying a lot of money to the IRS and not be any better off than you were before.

Other Options

Trying to work out a deal with the IRS isn't your only choice when trying to pay the tax you owe. You can also try to borrow the money from elsewhere.

For instance, you might want to visit a financial institution and take out a personal loan. This means you won't have to deal with the IRS' penalties and interest, but you will have to figure out if the interest you pay on the loan means you'll be paying more than if you dealt with the IRS directly.

You might also want to consider using a credit card to pay off the tax you owe to the IRS, but if you do you want to be very cautious. Make sure the interest rate you pay on your credit card is less than what you'll be paying to the IRS, and make sure putting the amount you owe on a card won't negatively impact your credit score. You should also avoid this option if you're already struggling with credit card debt.

Get out of Tax Debt With First Alliance Credit Union

Owing money to the IRS can be a scary experience. However, you have several options that will help you pay what you owe without going broke.

If you need help paying the IRS, become a First Alliance Credit Union member today. We offer low-interest personal loans and credit cards that can help you get out of a tough financial situation.

Learn how much you can qualify for with a debt consolidation loan