What to do if you owe more in taxes than you can afford right now
MINNEAPOLIS -- April 18 is almost here. More taxpayers are finding they owe on taxes, and can't afford to pay their tax bill. Here's a look at what you should do if you owe the IRS, and how to change your financial strategy for next tax season.
The hope for many is to break even, or perhaps get a small refund. But more taxpayers are finding they have a balance due this year, leading to surprise and stress.
"It is stressing people out. They want to know what do we owe and how do we get it paid on time," said Scott Kadrlik, certified public accountant and personal finance specialist of Meuwissen, Flygare, Kadrlik and Associates.
Why do more people owe the IRS this year? There are some common reasons. Many tax credits boosted for the 2021 tax year didn't stick around for 2022. A change in employment status and taking side gigs or becoming self-employed have also led to a change in tax responsibility.
"If you're working in a consulting environment, you're responsible for your taxes both as an employer and employee and the tax number ends up being pretty big," said Kadrlik.
Often too big to pay -- 29% of respondents to a new survey from U.S. News & World Report say they won't be able to pay their taxes by the April 18 deadline.
If you owe and even if you can't pay, Kadrlik suggests filing on time. The IRS will then send you a bill.
"At that point, you should contact them immediately. Make sure they know you are interested in making payments and getting it taken care of," said Kadrlik.
He says it's important to remember an extension to file is not an extension to pay what you owe.
"As of April 18th, you should have 90% of your taxes paid in or the IRS will charge you interest and penalties until that tax is paid," said Kadrlik.
You may have also heard of something called an offer in compromise. It's a program to help people who can't pay to settle their federal tax debts.
"It's a situation where things have gone wrong somewhere along the way and the IRS realizes they're not going to collect any more dollars and they would look at an offer, but it takes a long time to get there," said Kadrlik.
The IRS warns of office in compromise "mills" that promote settlements to people that don't qualify for the program, often costing taxpayers thousands of dollars in fees.
Looking forward, if you find you owe taxes it might be time for a change in financial strategy.
"If you're in a situation where you're making payments to the IRS, they also want to know what you are doing about the current year's taxes. In 2023, if you're still working in the gig economy what are you doing to set aside the dollars and making estimated payments for 2023 taxes because they don't want to deal with you a year from now," said Kadrlik.
The IRS has information on payment plans and offer in compromise eligibility on its website.