What to Do If You Can't Pay Your Tax Bill

Expert advice on what you should—and shouldn’t—do when you can’t rustle up the cash.

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Most of us worry about doing our taxes, but what about having the money to pay them? If you don't get to deposit a refund check this season, scraping together the cash to pay the tax man can add another layer of financial stress.

It's an experience that has become more common in recent years, as high unemployment and a weak economic recovery have taken their toll on cash-strapped Americans. Those who turned to freelance or consulting work during the recession and didn't set aside enough cash could also be hit with an unwieldy tax bill this season.

With the April 18 filing deadline looming, U.S. News talked to the experts to find out what you should and shouldn't do when it comes to paying your tax bill.

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File your return. Experts say the worst thing you can do is nothing at all. "People are usually thinking, 'Well, I can't pay the tax, I shouldn't file my return,'" says Cindy Cattran, tax principal at financial consulting firm Rehmann. "You absolutely need to file your return because there are penalties for failure to file."

If you owe taxes and don't file by April 18th, the Internal Revenue Service socks you with a 5 percent per month "failure-to-file" penalty. That's on top of the "failure-to-pay" penalty, which comes to 0.5 percent per month, plus interest—currently about 4 percent—the IRS charges on the outstanding taxes you owe. "They will also charge you interest on the penalties," says Lindsey Buchholz of The Tax Institute at H&R Block.

Also, if you fail to file your tax return, the IRS could file one on your behalf, using only the information they have, such as W-2s, which might not include the deductions or tax credits you deserve. "The amount they calculate is probably more than you really owe," says Buchholz. That could end up putting you into an even deeper hole, she adds.

Even worse, the IRS is not a typical creditor, says Cattran. It has access to information about your employer, wages, and where you live. "They will look to see however they can to find what assets you may have. They will literally show up at your door," she says.

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Ask for an extension. If you can't make the April 18 filing deadline, you can ask the IRS for a six-month extension, which will make your new deadline mid-October. Experts stress that an extension to file is not an extension to pay. While you'll avoid a failure-to-file penalty with an extension, you'll still be slapped with a failure-to-pay penalty plus any interest the IRS levies on the amount you owe. However, paying a 0.5 percent per-month, failure-to-pay penalty is a lot better than forking over more than 5 percent, including the failure-to-file penalty.

If you do file an extension, make sure you realistically estimate your taxes, says Melissa Labant of the American Institute of CPAs. "And round up so you don't come up short," and get slammed with penalties, she adds.

Pay as much as you can. If you're staring down a substantial sum in Box 76 of your 1040 and you can't come up with the payment before April 18th, don't panic: the IRS accepts partial payments. "Pay what you can," says Cattran. "The more you reduce that number, the better." The IRS will still charge you a failure-to-pay penalty plus interest on your unpaid balance, but it's the lesser of two evils when it comes to weighing the consequences of not filing at all, Cattran says.

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Tap your resources. Whether it means hitting up your sister for a loan, tapping your home equity, or putting your tax bill on a credit card, experts say in many cases, it's cheaper to pay the full balance outright rather than negotiate with the IRS.

"If at all possible, I would encourage tax payers to find a way to borrow the money, preferably from someone other than the IRS," says Labant. "Maybe you have a 401(k) that allows you to borrow money from it. Some people can borrow money against their life insurance." Even a credit card with a low introductory rate might be a less costly route, she says.