If you’ve recently filed your taxes and discovered you owe a tax debt, you may be researching the best method to pay them before the extended tax filing and payment deadline of May 17, 2021 (at the time of this publication). Although standard tax deductions and income tax brackets increased to account for the economic impact from the pandemic, many Americans will still owe on their taxes. If this is your situation, you may be asking, “Do I need to pay my tax bill in full or can I make payments?” or “What if I don’t have the funds readily available?”
Over the last three years, According to the IRS filing statistics, an average tax bill for those who owe money at tax time is approximately $5,527ˡ. It’s also estimated nearly 40% of Americans are unable to pay a tax bill of nearly half that amount on short notice.
If you were self-preparing your income taxes, it may be worth consulting with a tax professional to ensure the amount you owe is accurate. It’s also worth verifying that you’ve taken all qualified tax deductions available to you. You’ll want to revisit your withholdings with your Human Resources or Payroll department to appropriately adjust your paycheck withholdings and/or quarterly tax payments to spread your tax burden out evenly for next year’s taxes.
However, if you still find that you underpaid last year and now owe, consider the following options to help you pay your tax debt:
Personal Savings and Checking Accounts: Tax filers who owe on their 2020 tax bill may pay the Internal Revenue Service (IRS) using a personal savings and/or checking account by using the electronic funds withdrawal option found on their website.
Secure Debit Card: Pay your tax debt by using a secure debit card and the funds will automatically be withdrawn from your associated account.
Repayment Plan: The IRS website offers an application for a personal or business tax debt repayment option that offers a guaranteed monthly installment plan.
If you don’t have the funds you need to pay using the prior methods, you may need credit solutions in order to borrow money to pay your tax debt.
Credit Card: If you wish to use a credit card to pay your taxes, you’ll want to find a low-interest, secure credit card option. You can find an excellent introductory rate on a credit card by applying here².
Personal Loans: Depending on your personal situation, a secure or unsecured loan may be a better option for you to obtain the funds you need. Secured with a Certificate of Deposit (CD), stocks, or no collateral at all, there are a variety of low-interest options. Find out more about personal loans by clicking here.
Home Equity Loan: Use the equity in your home to help you access the money you need in order to pay your taxes. A fixed-rate home equity loan will allow you to borrow up to 80% of your home’s value. You may use it to pay your tax burden, make home improvements, or however you wish.
As always, if you have questions about your unique tax situation, consult a qualified tax professional. Also, be sure to read, “A Few Simple Ideas to Reduce Income Tax”.
If you’d like assistance with finding the income tax-deferral strategies available to you and how to use qualified retirement plan contributions to save toward your future and help offset your tax burden, schedule an appointment with a trusted professional at First Bank by clicking here.
ˡ 45% of American Taxpayers Have No Idea When They Last Updated Their Withholding: AICPA W-4 Survey.
² Dependent on your credit and application approval.