What to do if you can't pay your taxes

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I Filed My Returns But I Can't Pay My Taxes. Now What Do I Do?

Now that you've filed your returns, the question for those of you who owe money is, how do I pay? Here's what you need to know to deal with this dilemma.

IRS Debt: First, the Bad News

If you didn't file your return on time, the IRS will hit you with its hefty failure-to-file penalty of 5 percent per month, up to a maximum of 25 percent, of your balance due. You'll still face the failure-to-pay penalty each month your bill is outstanding, but it's only 0.5 percent of the amount you owe. It is always better to file on time or get an extension even if you can't pay all the taxes due.

IRS Debt: Now the Good News

If you are not one of the millions who are maxed out on their credit cards, you can pay with plastic. The IRS has contracts with two companies to accept credit card payments: Official Payments and Link2Gov. Both accept payments from electronic as well as paper filers, either by phone or by the internet. They take American Express, Discover, MasterCard or VISA. Contact Link2Gov at (888) PAY1040. The web site is pay1040.com. Official payments can be found at (800) 2PAYTAX or (800) 272-9829. The web site is officialpayments.com. Each company has its own fee schedule, generally 2.49 percent of your tax bill or a minimum $1, connected with charged payments.

If you carry a balance on your credit card, you'll rack up interest charges. But interest on your credit card might be less than IRS penalties and interest. Either way, do the math so that you don't pay either Uncle Sam or your credit card company any more than necessary.

If your tax bill is more than your credit card limit, the IRS is willing to take monthly payments. You can even pick your monthly payment amount and the due date.

In fact, if you've previously filed and paid your taxes on time, if your tax bill is less than $10,000 and you can convince the IRS that you can't come up with that much all at once, the agency can't turn down your request. Your installment plan, however, must pay off the due tax in at least three years.

To get the program going, attach Form 9465, Installment Agreement Request to the front of your tax return.