You owe income taxes for 2019. Now what?
Tuesday, 18 February 2020
A tax refund can be a nice windfall, but that's not always the result of filing taxes. Millions of Americans end up owing taxes on April 15 of each year.
In fact, according to a Taxpayer Advocate Service report, approximately 23.4 million U.S. tax returns showed a balance due for the 2019 tax season.
If you've completed your tax return and found that you're included in that group, it's time to determine how to pay that balance. (Don't even consider not paying, as the IRS will slap you with a failure-to-pay penalty, as well as interest, which accrues daily. And if you don't file at all, the penalties will be even higher.)
What are your payment options?
The IRS makes it easy for you to pay your taxes. You can pay by credit card, bank draft, money order and check.
If you have enough savings to cover your tax balance, you could liquidate your savings to pay the bill. However, doing so will mean losing progress on your savings goal and could leave you without cash available for potential emergencies.
If you use a credit card to pay your balance, you'll likely have to pay processing fees. Keep your receipt, as those fees will be deductible on your 2020 tax return. If you're paying with a credit card, you could save money by opening a new card with an introductory interest rate of 0 percent. Just make sure you can pay off the balance before the introductory rate expires.
You could also get a personal loan to cover your tax bill. BBVA's Express Personal Loan1 can provide access to your cash on the same day as loan approval if you choose to receive your loan funds into a BBVA checking account. BBVA's Express Personal loan offers competitive rates and no collateral requirements.
You can also apply for a payment plan through the IRS. If you qualify, you'll make monthly payments directly to the IRS on your balance owed. For plans that are 120 days or less, you pay no setup fees and make monthly payments until your balance and associated interest and penalties are paid in full. Plans lasting more than 120 days require a $31 setup fee for most taxpayers.
Where do you send the payment?
If you prefer to pay with a check or money order, you must find the appropriate mailing address. You can search for the right address on the IRS website for paying by mail.
How can you avoid this happening again?
The ideal situation is to have just the right amount of income withheld from your paychecks so you don't owe anything to the IRS at the end of the year, but you also don't get a refund. (Getting a refund means you essentially gave the IRS an interest-free loan to use your money for a year).
You can take steps to make that happen. Consider talking to a tax advisor or your workplace HR department about how to change your personal withholdings to make sure your payroll deductions are enough to cover your tax liability. If you think you may earn more in future years or need help paying taxes again, consider talking to a banker about how to proactively plan for this scenario.
1. All loans are subject to approval, including credit approval. The content provided is for informational purposes only.
Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
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