How to Pay Taxes Owed to the IRS: Your Options

Understanding available payment methods is important for fulfilling tax obligations. The Internal Revenue Service (IRS) provides various avenues for taxpayers to submit payments, whether they can pay in full or require alternative arrangements. Navigating these options can help taxpayers manage their financial duties effectively.

Methods for Paying Your Taxes

One straightforward way to pay federal taxes is through IRS Direct Pay, a free and secure service that allows payments directly from a checking or savings account. Taxpayers can access this service on the IRS website, where they select the reason for payment, the type of payment, and the tax period. Identity verification is required, often by providing information from a prior tax return, before entering bank details and scheduling the payment. Payments can be scheduled up to 365 days in advance, and taxpayers can modify or cancel a payment up to two business days before its scheduled processing date.

Another option involves using a debit card, credit card, or digital wallet through IRS-approved third-party payment processors. These processors facilitate payments online or over the phone, accepting various card types and digital wallets. While convenient, these methods typically involve processing fees charged by the third-party processor, which do not go to the IRS. Review the fees from different processors, as they can vary based on the card type and payment amount.

The Electronic Federal Tax Payment System (EFTPS) offers a free and convenient way to pay federal taxes electronically, available 24/7. Enrollment is necessary to use EFTPS, which typically involves providing a Taxpayer Identification Number, bank account details, and address information. After enrollment, a Personal Identification Number (PIN) is mailed, usually within five to seven business days, allowing access to schedule payments. Payments through EFTPS must be scheduled by 8:00 p.m. Eastern Time at least one day before the tax due date for timely processing.

For those who prefer traditional methods, tax payments can be made by check, money order, or cashier’s check via mail. When sending a payment, it should be made payable to the “U.S. Treasury” and include the taxpayer’s name, address, phone number, Social Security number (or Employer Identification Number), the tax year, and the related tax form or notice number. It is recommended to include Form 1040-V, Payment Voucher, and to avoid stapling or paper-clipping the payment to the voucher or return. Cash payments are not accepted by mail.

Paying with cash is possible through retail partners that collaborate with the IRS. Taxpayers can obtain a payment barcode online, which they then take along with their cash payment to a participating retailer. There is typically a daily payment limit of $1,000 to $1,500 per transaction and a small fee for this service, often around $1.50 to $3.99. A receipt confirming the payment is provided by the retailer.

Options When You Cannot Pay

When a taxpayer owes federal taxes but cannot afford to pay the full amount by the deadline, the IRS offers several programs to provide flexibility. These options are distinct from direct payment methods and are designed to help manage tax liabilities over time.

Short-Term Payment Plan

A Short-Term Payment Plan allows taxpayers an additional period, typically up to 180 days, to pay their tax debt in full. This option is generally available if the combined tax, penalties, and interest owed are less than $100,000. While under this plan, interest and penalties continue to accrue on the unpaid balance. Applying for a short-term plan can often be done online through the IRS website, and it does not usually require extensive financial documentation or a setup fee.

Installment Agreement

For taxpayers needing more than 180 days to pay, an Installment Agreement, also known as a Long-Term Payment Plan, permits monthly payments for up to 72 months (six years). To qualify, individuals generally must owe $50,000 or less in combined tax, penalties, and interest, and have filed all required tax returns. Application for an installment agreement can be made online through the IRS Online Payment Agreement tool, by mailing Form 9465, or by calling the IRS. Setup fees may apply, with potential reductions for low-income taxpayers, and payment through direct debit is often encouraged or required for larger balances.

Offer in Compromise (OIC)

An Offer in Compromise (OIC) allows certain taxpayers to settle their tax debt with the IRS for a lower amount than what is owed. The IRS considers an OIC when there is doubt about the taxpayer’s ability to pay the full amount, doubt about the accuracy of the amount owed, or when a compromise would promote effective tax administration due to economic hardship. Eligibility requirements include having filed all required tax returns, made all necessary estimated payments, and not being in an open bankruptcy proceeding. The application process involves submitting Form 656 and detailed financial information on Form 433-A (for individuals) or 433-B (for businesses), along with a non-refundable application fee and an initial payment.

Key Details for Tax Payments

Understanding payment due dates is essential to avoid potential penalties and interest. The primary tax filing and payment deadline for most individual federal income taxes is typically April 15th of each year. While an extension to file a tax return can be requested, which usually grants an additional six months, this extension does not prolong the time to pay any taxes owed. Taxes are still due by the original April 15th deadline, and any unpaid amounts will accrue interest and penalties from that date.

Penalties and Interest

Penalties and interest can be assessed on underpayments or late payments. Interest is charged on unpaid taxes from the original due date until the debt is fully paid, even if an extension to file was granted. The interest rate is set quarterly by the IRS and is based on the federal short-term rate plus three percentage points, compounding daily. For instance, the interest rate on underpayments for individuals in the first half of 2025 is 7%.

A late payment penalty, also known as the failure-to-pay penalty, is generally 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to a maximum of 25% of the unpaid amount. If a taxpayer files on time and enters into an installment agreement, this penalty rate may be reduced to 0.25% per month. It is important to note that penalties and interest can apply concurrently, increasing the total amount owed.

Maintaining thorough records of tax payments and related documents is an important practice. This includes keeping confirmation numbers for electronic payments, copies of checks or money orders, and any correspondence from the IRS regarding payment arrangements. These records serve as proof of payment and can be crucial for resolving any discrepancies or questions that may arise in the future.