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What If You Can't Pay Tax On Time?

What If You Can't Pay Tax On Time?

Few things strike fear into the heart of an American (expat or stateside) than an impending April 15th deadline when one expects to owe more than he can pay. To make matters worse than they need to be, this only somewhat rational fear of the IRS causes many Americans to simply fail to file. But communication is key, even with the IRS, and there are ways to face tax time with little to no fear, even if you cannot afford to pay by tax time.

  • Always, always file your return on time! If you expect to owe tax, “on time” is by April 15th (whether living stateside or abroad).
  • If you cannot afford to pay any amount, you should be especially careful to file on time so that you do not face dual penalties.
  • If you can afford to pay a portion of the amount owed, send what you can with your return (it’s always better to pay something rather than nothing).
  • To pay your owed tax in monthly installments, simply complete form 9464 and staple it to the front of your tax return before mailing. Whenever possible, you should be making the first installment at the time of filing. You choose the amount of your installments. Choose an amount that will appease the IRS, work with your income and not keep you too long in debt.
  • When you put your return in the mail, be sure to use a certified mailing option. If the IRS misplaces your return, a proof of delivery receipt will be your fail safe against a failure to file penalty.
  • If the IRS approves of your monthly installment amount, they will begin sending you monthly bills for that same amount. If they decide that the amount is too low, they will send a stack of paperwork for you to fill out and mail back (word to the wise, choose a realistic amount up front).
  • Communicate, communicate, communicate. If you are paying late, or you cannot pay the full amount (at tax time or on your monthly installments), pick up the phone and let the IRS know your situation. If you are mailing a letter to inform them of your inability to pay, be sure the letter arrives by the time your payment is due. Without communication, the full amount becomes due immediately.

If you cannot pay your owed taxes and fail to communicate with the IRS in the above mentioned ways, the IRS will not be so kind in their communications with you. In fact, failure to pay taxes can result in an IRS lien on your assets.

Many do not understand the seriousness of an IRS lien, but this essentially means that the IRS will collect what is owed if you have anything at all of value. They can take the profits from your home when to sell, mar your credit score, pull money from your checking or savings accounts (from any account associated with your social security number, even if you are not the only name on the account), withdraw money from 403b and 401k accounts...and if you’re working, they can draw straight from your pay check.

Because few creditors can be as fierce as the IRS, it is often wiser to borrow money in order to pay the IRS on time. Do your research and decide whether installment payments to the IRS or monthly loan repayments would be a better choice for your family and work situation.


If you owes taxes and fails to file a return by April 15th, a failure to file penalty will be applied. This penalty amounts to 5%, assessed monthly (up to 25% of the total tax due can be assessed). To avoid this penalty, you must either file on time or file for an extension on time. After the extension period has lapsed, if the tax has still not been paid, fees will be retroactive from April 15th.


If you file your taxes on time but to not submit payment at that time (assuming payment is owed), a failure to file penalty will be applied even if you filed for an extension (and paid within the time frame of that extension). The payment date it April 15th, even if the filing date has been extended. The Failure to Pay penalty is .5% each month to a maximum amount of 22.5% of the total owed. The way to avoid this penalty is to pay, or make arrangements to pay, by April 15th.


Self-employed individuals are required to make quarterly payments to the IRS. These payments are estimated tax and are based on your previous year’s self-employment income. If these payments are estimated accurately, they may be penalized at a rate of 8% annually. Therefore, it is very important to seek professional tax advice in the matter of estimated tax.


In addition to the above mentioned penalties, interest is also accrued. This rate is currently around 1% monthly.

Clearly, it is very important to learn the deadlines and educate yourself on the penalties of filing and paying late. For help in any of these important matters, please contact the experts are Taxes for Expats today!

Ines Zemelman, EA
Founder of TFX