What to do if you can’t pay the taxes you owe

NEW YORK — If you know or suspect you can’t pay the taxes you owe this tax season, you should still file a return with that information or file for an extension. That’s the top piece of advice that tax professionals want you to know.

“The IRS wants to work with you,” said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals. “But if you’re asking the IRS for some help, they have to know something about you. So the first thing is to have that return filed. The number one takeaway is that owing money is not a reason not to file.”

If you don’t file a return or ask for an extension, then interest and penalties begin to accrue immediately. Those costs are largely avoidable if you share the information about your circumstances with the IRS in a timely way. Filing a return without paying taxes owed in full is preferable to not filing.

To be clear, if you don’t pay all the taxes you owe by the April 15 filing deadline, interest will accrue even if you’ve been granted an extension to October, but that interest will be more manageable than fees that add up when you pay no taxes at all.

“The worst case scenario is that you don’t file and end up being liable for penalties later on,” said Emily DiVito, senior advisor for economic policy at the nonprofit Groundwork Collaborative and former U.S. Treasury advisor. “That’s not good for anyone. But there are opportunities to ask for extensions and to go on payment plans.”

Here’s what to know:

What happens if I don’t pay my taxes?

In addition to tacking on interest and penalties, the IRS can eventually garnish your wages, place a lien on your property, or even place a hold on your passport. But if you file for an extension, or if you file your return with your financial information, you can avoid these consequences. Even if you don’t have the money to pay what you owe in full by April 15, paying just a small part when you file.

Are there free tools to help me manage filing for an extension or making a payment plan?

Yes. Volunteer Income Tax Assistance (VITA) sites across the country are staffed with volunteers who will help you file a return or arrange for an extension for free. These volunteers can help you set up an installment payment plan of as many as 72 months to pay off any owed taxes. The IRS Direct File program is also free to use.

“While the question mark when you go to click the button to pay can be intimidating, we want to make sure that taxpayers get the money you’re owed, too,” said DiVito. “Most taxpayers — certainly most working taxpayers — get money back. But the way that a lot of the tax credits function, you only get that refund if you file your taxes in the first place.”

Are there other possible outcomes?

If you’ve experienced unusual hardship, and you share that with the IRS, the IRS can sometimes put your account in “currently-not-collectible” status. To do that, you share information about your income and living expenses, and the IRS determines if you qualify.

“Let’s say you’ve been ill, and you lost your job from illness, and you have serious medical bills. You’ve had all the bad luck, and things happened outside of your control, and you need some relief,” said O’Saben. “Then the IRS can place you in uncollectable status. But all of this requires conversation and communication. No one wants to admit they’re having economic problems, but the IRS will work with you if you do.”

There are also rare circumstances in which the IRS will settle your tax debt for less than the amount owed, called an “offer in compromise.” VITA tax professionals can also help you see if you’re eligible, or you can use a free IRS tool online.

I didn’t file my taxes last year. What now?

That’s OK. Start now.

“I’ve been doing taxes for more than 35 years,” said O’Saben. “The number one reason people don’t file is that they have a feeling they may owe — which could be wrong — and they don’t want to face it. But it’s not a problem that’s going to go away. So tell the IRS the truth of the situation. And they will work with you.”

Miklos Ringbauer, a CPA and tax professional in California, echoed this.

“It’s perfectly okay,” he said. “The IRS deals with every single taxpayer. They have dealt with this before. There’s nothing they haven’t seen.”

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