3 ways to pay off your large tax bill

Are you stuck with a large income tax bill to pay the IRS?

For some people, this expense can be so large that they can't pay off their full tax bill right away. If you're in this situation, then you're probably wondering about your options for covering your remaining balance.

Luckily, there are repayment options you can consider:

1. Short-term IRS payment plan

This repayment plan, offered through the IRS, gives you 120 extra days to pay off your tax bill.

However, this extension comes with a few stipulations you should know about:

• You'll be charged interest and other penalties while you're repaying, so it's best to pay it off ASAP rather than wait the full 120 days.
• You need to owe less than $10,000 in combined tax, penalties, and interest to qualify.

Note: There's no setup fee for the short-term payment plan — just the interest and penalty charges you'll pay on top of your balance.

2. Long-term IRS payment plan

Also known as an installment agreement, this payment plan is likewise done directly through the IRS for taxpayers who need more than the 120-day extension to pay off their bill.

To set up a long-term payment plan, you must tell the IRS how much you can realistically pay each month. Then, the IRS either approves or denies your request. To qualify, you need to owe $50,000 or less in combined tax, penalties, and interest.

You'll also pay interest and penalties on top of your balance, just like the short-term payment plan. However, unlike short-term plans, long-term payment plans have a setup fee, which could be reduced or waived based on your payment method or income.

3. Credit card

Yes, you can pay your income taxes with a credit card, but it comes with a cost.

Legally, the IRS cannot accept credit cards for tax payment. So instead, the payment can be done through a third party, which then charges you a processing fee (amounting to a small percentage of your total payment).

Keep your credit card's interest rate in mind before using it to pay off your taxes. Credit cards have comparatively higher interest rates than other borrowing methods, so make sure you don't trade in one problem for another in credit card debt.

On a positive note, paying with a credit card — instead of using an IRS payment plan — means avoiding the IRS penalties mentioned above. You'll be all settled with the IRS; therefore, the only charges will be the third-party processing fee and any interest incurred via your credit card.

What to remember

Having repayment options is great, especially when dealing with a large, stressful tax bill. That's why it's important to pay as much as you can at the tax deadline, then figure out the best way to cover the remainder through the other means outlined here. Remember to be totally honest with yourself about how much time you'll need to pay off your balance so you can find the right terms for your unique situation.

Ready to pay down your tax bill?

Come in for a Citizens Checkup at your nearest branch to get personalized advice on how best to proceed.