Just the three letters — IRS — together makes some people break out into a cold sweat. If dealing with the tax arm of the federal government makes you nervous, you’re not alone.
If you don’t have the funds available to pay right away, the IRS isn’t very forgiving. You do have some options, however, which includes getting a loan to pay your taxes.
When you owe the IRS money
When you owe money to the IRS, the worst thing you can do is ignore it or just not file a tax return. Even if you can’t pay the taxes due, you still need to send your return in on time.
Failure to file a return when you owe money carries a steep penalty, with an extra 5% added each month up to a maximum 25% penalty.
The long-term consequences of not paying your taxes can be severe. The IRS has the authority to garnish your wages, put a lien on your property, and even seize some of your assets to pay that debt. A tax lien is the government’s legal claim against your property and can be devastating to your personal credit.
Your first order of business should be to file your return. Then you can worry about how you’re going to pay your tax bill.
Getting a loan to pay taxes
Having delinquent taxes is usually unexpected and not something you want hanging over your head. In most cases, you have three options to pay off this debt if you don’t have the cash on hand.
- An agreement directly with the IRS
- Paying taxes with credit cards
- Using a personal loan to pay taxes
Paying your taxes with an IRS arrangement
Taxpayers who don’t owe that much and have a steady source of income can set up a payment plan with the IRS.
If the tax burden keeps you from paying your monthly expenses (rent, food, gas), you might even be able to get those payments delayed for a short period.
The procedure to get an installment agreement in place varies depending on your circumstances. For example, if you’ve filed and paid your tax bills up until now, and your current bill is $10,000 or less, the IRS will often grant an installment plan even if you have the money on hand to pay.
If you owe $50,000 or less, no matter what your past tax situation was, you simply need to request an installment agreement online and pay the applicable fee. Tax payments to the IRS are subject to fees and interest, so if you choose this option, consider the penalties and interest that will be added to your tax bill. All things considered, expect to pay an 8% to 10% APR when you opt for an installment agreement (source)
In some cases, this isn’t the best deal because penalties and interest added to your tax bill with these agreements make your cost higher than if you paid with a low-interest credit card or personal loan. And, even with one of these installment agreements in place, the IRS still has the option to file tax liens against you until your payment terms are complete.
If you can’t pay your taxes in full, in part, or don’t think that making payments is even going to do the trick, you can ask the IRS to make a deal with you. In this case, you might want to make an offer in compromise: a lump sum payment to the IRS that is less than the taxes you owe.
Keep in mind that, if they accept your offer, you’ll need to pay those taxes right away to clear your debt. That means that you still need to find a source of cash to pay your tax bill.
Using credit cards to pay your taxes
You can use a credit card to pay taxes, which may or may not benefit you depending on your circumstances. If you have access to a rewards credit card or a credit card with 0% annual percentage rate (APR) introductory rate, this might be a good choice.
The benefit to using a credit card is that you can earn rewards from certain cards and it is fast access to cash for this important payment. There are, unfortunately, several downsides.
The IRS charges a processing fee to pay with a credit card that ranges from 1.87% to 2.25%, which can add up on a large tax payment. Adding a large balance to your credit cards can also negatively affect your credit. Plus, if you can’t pay off the balance quickly, the interest rates you pay with credit cards will likely be higher than those you would pay with a personal loan.
Paying your taxes with a personal loan
In most cases, a short-term personal loan is an ideal solution to pay off IRS debt. You can borrow money from a private lender, usually at a rate that is lower than the IRS interest plus penalty. Obviously, the better your credit score, the greater your chances will be for qualifying for a personal loan with a low interest rate.
If you don’t know your current credit score, you can check it for free here.
There are several benefits of using a personal loan to pay taxes. When you pay off your tax bill in a lump sum, you don’t have to worry about penalties and interest from the IRS. You can also sleep better knowing that no one is going to garnish your wages, seize your assets, or file a lien against your property.
Many personal loans have competitive interest rates and no prepayment penalties. This means you can pay off the loan as quickly as you want without paying any additional fees.
Where to get personal loans for taxes
You can get personal loans from major banks, credit unions, and many online lenders. Borrowers now find some of the most competitive rates and fastest funding for personal loans with online marketplace lenders and online lenders. There are several alternatives depending on your income and credit.
SoFi can be a good option for borrowers that have high income and excellent credit. The average income of a SoFi borrower is $150,000, with a 780 credit score. The company also requires that borrowers have at least a Bachelor’s degree from an accredited U.S. university. Personal loans range from $5,000 to $100,000 with payment terms up to 7 years. Loans can often be funded within seven days. There are no loan origination fees with SoFi and no prepayment penalties. See SoFi’s profile for the latest rates and terms.
If you don’t quite meet SoFi’s rigid requirements, check out LightStream. This is the personal loan division of SunTrust Bank, which is a Fortune 500 company. LightStream provides unsecured personal loans to borrowers with good credit and a steady income. The application process is entirely online, and some loans can be funded the same day, which is a big plus if you have a tax bill due. You can use these personal loans for just about anything, but the company will ask the purpose of the loan and may base your interest rate on the answer given. See LightStream’s profile for the latest rates and terms. There are also no loan origination fees or prepayment penalties with LightStream.
If you just have fair credit, you can still get a personal loan to pay your taxes. Avant is an online lending platform that has funded more than $4 billion in loans through its platform as of 2017. The company will consider borrowers with a minimum FICO score of 580 and has the benefit of next-day funding in many cases. Personal loans through Avant range from $1,000 to $35,000. APRs vary depending on your credit. There is a loan origination fee but there are no prepayment fees. Even though it has higher interest rates, this could still be your best option to pay off your tax bill. See Avant‘s profile for the latest rates and terms.
How to compare lenders
When you compare personal loan lenders, pay attention to the loan’s APR, origination fees, and whether there are prepayment penalties.SuperMoney makes it easy to compare personal loan lenders by providing free expert and consumer reviews.