Many of us like to think of April as tax refund time, but for some, filing a tax return will bring an unpleasant surprise: you owe money you weren't expecting, and you don't have the money to pay the bill. So, what do you do?

Before panic sets in, double-check your math. If you haven't been using tax software or an accountant, consider using one or the other to double check your return. Make sure that you actually do owe money, and that you've taken advantage of any deductions and credits you're entitled to. If everything checks out and you still owe money, the next step is to resolve to deal with the problem. In this article we'll explore nine ways to pay this unexpected tax debt. (If you haven't started your taxes yet, read 10 Steps To Tax Preparation.)


Believe it or not, facing the problem is the least expensive and most painless route you can take. Ignoring a debt to the Internal Revenue Service (IRS) will always cause problems. Not only will interest and penalties start accruing on every dollar you owe from the moment your taxes aren't paid in full, but if you ignore the situation, the IRS will assume you are trying to evade your taxes. You don't want to convince the IRS that it should take enforced collection action such as levying your bank accounts, garnishing your wages, or seizing other assets like your car.

To start addressing your tax debt, go ahead and file your return even if you can't pay all of what you owe. According to the IRS, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25% or more. Remember that while you can request a filing extension using Form 4868 Automatic Extension of Time To File U.S. Individual Tax Return, the extension only increases the amount of time you have to file the paperwork – it does not increase the amount of time you have to pay your bill. On the other hand, Form 1127 will allow you to request a six month payment extension, but you have to demonstrate that paying the tax immediately would cause "undue hardship," not mere inconvenience. Completing this paperwork involves preparing a statement of all your current assets and liabilities for the IRS along with an itemized list of all money you received and spent in the three months prior to requesting the extension. The IRS reserves payment extensions for extremely trying circumstances.

(For an in-depth walk through, check out Get a Six-Month Tax Extension.)

Alternative Payment Methods

The following is a list of nine payment options you can turn to if you find yourself saddled with an unexpected tax bill. Follow along to determine which option, or combination of options, will help you best resolve your situation.

  1. Pay With Your Credit Card
    If you have enough available credit, paying your tax bill with one or more of your credit cards is an option. It may not be the best option, however, given how high credit card interest rates are. Also, when you pay your taxes with your credit card, you'll incur a convenience fee ranging from 2.25-3.93% of the amount you owe depending on which third-party company you use to submit your credit card payment to the IRS. If you decide to go this route, choose the third-party company with the lowest fee and the credit card with the lowest APR. Check the terms and conditions of your card agreement for details. Better yet, try to acquire a new card with a low introductory APR and get your bill paid off by the time the APR resets. Don't get a cash advance – it doesn't make any sense to get a cash advance on your credit card to pay your tax bill now that the IRS actually allows you to pay taxes with your credit card because you'll end up paying unnecessary fees. (To get started, check out How to Read Loan and Credit Card Agreements.)
  1. Obtain a Bank Loan
    Banks and credit unions offer loans to help consolidate debt such as personal loans and unsecured lines of credit not attached to a credit card or secured by your home, but this option will not necessarily be much better than putting the money on your credit card. A debt consolidation loan might charge between 6-21% APR depending on your creditworthiness and fluctuations in interest rates over time and from lender to lender. For example, rate quotes for a three-year, $10,000 loan in Jan. 2018 on one website ranged from 7.2% to 35.99%. The higher rates are comparable to credit card interest rates. But if you currently have good credit and this tax debacle is a one-time thing, your credit score may be better off if you take out a personal loan instead of racking up a credit card balance that you can't make the high-interest payments for. The other problems with a bank loan are that you'll have to go through an application process, and you might not be approved.
  2. Pay What You Can Afford Now and Wait for a Bill
    Scrape together as much as you can and send that amount to the IRS along with your return. In a few weeks, the IRS will send you a bill titled "Notice of Tax Due and Demand for Payment". This bill will show both the amount of tax you did not originally pay and the penalties and interest the IRS has assessed on that amount. Overall, you may be better off financially by putting the bill on your credit card. IRS interest and penalties may be higher than your credit card's finance charges.
  1. Liquidate Your Savings Accounts
    Unexpectedly owing money to the IRS could very well count as an emergency, so don't be shy about using your emergency fund to pay off the expense. Sure, you could hang on to your emergency money in case of events that seem more urgent, like unexpected medical expenses, but those things are only possibilities; meanwhile, if you don't pay the IRS, you'll certainly owe penalties and interest. Also, if you have the money to pay your bill but you don't fork it over, the IRS might see this as intentional nonpayment of taxes, which can get you into serious trouble.
  2. Sell Some Investments
    The problem with selling investments in an emergency situation is that you may have to take a loss. To put a positive spin on this negative, any loss up to $3,000 you might incur (called a "realized capital loss") by selling investments at an inopportune time can be used to offset any gains from selling appreciated investments in the same year. This will minimize next year's tax bill. Losses over the $3,000 limit can be carried over to the following tax year under the capital loss carryover rule. (To learn more, check out Selling Losing Securities for a Tax Advantage.)
  1. Borrow From Your Retirement Account
    While it's a good idea to think of your retirement account as an account that you aren't allowed to withdraw a penny from until you stop working for good, there actually are provisions allowing you to take the money out sooner. Most people will have to pay a penalty on the withdrawal and repay the account within a certain time frame, but this depends on factors like your age and the type of retirement account you're borrowing from. (To learn more about this last-resort option, check out Borrowing From Your Plan and Eight Reasons to Never Borrow From Your 401(k).)
  2. Borrow From a Relative or Friend
    Borrowing money from friends and relatives is always tricky and can put your relationship in jeopardy. It's often better to pay a little extra money in interest than to risk damaging an important relationship. However, if you've had successful financial transactions with a friend or family member in the past and don't feel the relationship is at risk, borrowing from that person is probably the simplest and cheapest option.
  1. Set Up an Installment Agreement
    If you know you won't be able to pay in full, you can call the IRS and ask about setting up an installment agreement using IRS Form 9465. You'll still face interest and penalties while you're paying off your debt, and you'll need to make your payments in full and on time every month. There is a fee for setting up the agreement, and another fee to reinstate the plan if you fail to meet your obligations at any point during the repayment period. If you owe more than $25,000 in taxes, penalties and interest combined, you may also need to file Form 433F, the Collection Information Statement. One reason you may not want to take the installment payment route is that the government can still file a Notice of Federal Tax Lien on your property until your debt is paid off, which can make moving or using your equity a near impossibility. However, the government cannot take collection action against you while your agreement is in place.
  2. Take Out a Home Equity Line of Credit
    If you own a home, borrowing against the equity you've built up can be an attractive option. Interest rates for a home-equity line of credit (HELOC) tend to be low and, unlike credit card interest, HELOC interest may be tax deductible (in 2017, at least; that deduction disappears under the new tax legislation from 2018 through 2025 taxes). The problem is that if you fail to make payments on your HELOC, you could risk losing your home. The extra interest you'd pay to a credit card company may be worth it to avoid putting your home at risk. (For a rundown on how these loans work and how to get one, check out The Home Equity Loan: What It Is and How It Works and Home-Equity Loans: The Costs.)

    The Bottom Line

    Finally, try not to feel ashamed or alone. Not having enough money to pay your tax bill is not a unique problem; the IRS has multiple pages on its website dedicated to helping those who can't pay, which suggests that the problem is relatively widespread. There's no question that paying your bill is going to sting, but much like ripping off a bandage, your best bet is to face the pain and get it over with as quickly as possible.