How to Pay Taxes You Owe: Methods & Options

Taxpayers often find themselves owing money to the Internal Revenue Service (IRS) at tax time, due to factors like insufficient tax withholding or unexpected income. Understanding how to fulfill these tax obligations is important. The IRS provides several clear methods for taxpayers to submit payments.

Methods for Paying Your Taxes

Taxpayers have multiple options for submitting federal tax payments. IRS Direct Pay is a free online service allowing payments directly from a checking or savings account. To use it, taxpayers select the payment reason and tax year, providing bank account and routing numbers, along with identity verification from a prior tax return.

Another electronic option uses debit cards, credit cards, or digital wallets through approved third-party processors. These methods involve a processing fee charged by the processor, not the IRS. Debit card payments might incur a flat fee around $2.15, while credit card payments have a percentage-based fee, often 1.75% to 1.85% of the payment, with a minimum of about $2.50. Digital wallets like PayPal and Click to Pay are also accepted.

Electronic Funds Withdrawal (EFW) is an integrated payment solution for e-filers. Selected when e-filing, EFW allows taxpayers to authorize a direct debit from their bank account on a specified date. EFW is free and secure, eliminating separate payment submissions.

Traditional methods like checks or money orders sent by mail remain available. Payments should be made payable to the “United States Treasury” and include the taxpayer’s name, address, phone number, Social Security number, tax year, and form or notice number. It is crucial to never send cash through the mail. For cash payments, options include retail partners accepting payments with a barcode (usually for a small fee, limits around $1,000 per transaction), or an appointment at an IRS Taxpayer Assistance Center (TAC) that accepts cash.

Options When You Cannot Pay Immediately

When taxpayers cannot pay their full tax liability by the due date, the IRS offers relief options to avoid significant penalties. A short-term payment plan provides up to 180 additional days to pay the tax liability. There is no fee to set up this plan, but interest and penalties accrue until the full amount is paid. Individuals can request a short-term plan online or by phone.

An Installment Agreement allows monthly payments over a longer period, typically up to 72 months. To request this, use IRS Form 9465. This form requires details like total tax liability, proposed monthly payment, and bank account information for direct debit, which can reduce setup fees. Form 9465 can be submitted with the tax return or online, and the IRS typically responds within 30 days. Interest and penalties continue to apply to the unpaid balance under an installment agreement.

In significant financial hardship, an Offer in Compromise (OIC) may allow settling tax debt for less than owed. This option is considered when a taxpayer cannot pay their full tax liability or doing so would create economic hardship. The process involves submitting IRS Form 656, which requires comprehensive financial information including income, expenses, assets, and property equity. The IRS evaluates these details to determine a taxpayer’s ability to pay. An application fee may apply, and the process can be complex, often requiring substantial documentation.

Penalties and Interest for Underpayment

Failing to pay taxes on time or underpaying results in financial consequences through penalties and interest charges. The failure-to-pay penalty applies when taxes are not paid by the due date, even with a filing extension. This penalty is 0.5% of unpaid taxes per month or part of a month, up to a maximum of 25%. If an approved installment agreement is in place, this penalty may be reduced to 0.25% per month.

Interest is charged on underpayments from the original due date until payment. The interest rate is determined quarterly and can change; for individuals, it was 7% per year, compounded daily, for the first two quarters of 2025. This interest applies to any unpaid tax, including penalties.

A separate penalty, the failure-to-file penalty, applies if a tax return is not submitted by the due date, including extensions. This penalty is 5% of the unpaid tax per month or part of a month the return is late, up to a maximum of 25%. If both failure-to-file and failure-to-pay penalties apply in the same month, the combined penalty is typically capped at 5%. Filing on time, even if unable to pay the full amount, can significantly reduce overall penalties.

The IRS may waive penalties if the taxpayer demonstrates reasonable cause for non-compliance. Valid reasons include natural disasters, serious illness, or inability to obtain necessary records. However, interest charges are not abated unless they resulted from an unreasonable IRS error or delay.