Paying Your Tax Debt
June 25, 2009 by Miranda Marquit
Filed under Finance
Many people are dealing with the burden of tax debt . For many who pay estimated taxes, or even for those who owe money and have since lost their jobs, tax debt is a reality. However, the IRS is generally rather reasonable when it comes to repaying what you owe. But you do have to 
remember that tax debt is, in fact, debt. While wage garnishment is an option, there are other possibilities that may be able to save you from the problems associated with wage garnishment.
Payment plan with the IRS
One of the easiest ways to pay your tax debt is to set up a payment plan with the IRS . You will be charged interest (usually between 5% and 9%, depending on what you owe and your credit), just as you would be with any other loan. After all, the payment plan is really just another name for a loan that the IRS makes to you.
Loan to cover the amount you owe
You can also take out a loan to cover the amount that you owe in taxes. However, unless you have a great interest rate, or manage to get a 0% introductory rate on a credit card that you can use for this purpose, you are usually better off just setting up a plan directly with the IRS. You still have to make payments — with interest — to someone . And besides, credit standards being what they are, you may not get approved for the loan you want.
Settlement
The final option is debt settlement . Believe it or not, you can sometimes settle your debt with the IRS . As with any creditor, the ability to pay less than you owe overall is available. However, you usually have to prove that you really can’t discharge your tax debt in full in order to be approved for this option. But if you can successfully prove that you are unlikely to meet your obligation anytime soon, the IRS might be willing to accept between 25% and 75% of what you owe if you can pay it immediately.
Image source: alykat via Flickr
Some countries will actually allow you to pay your tax debt over a 12 month period with no interest charges. (This was New Zealand) I am not sure if they will allow a reduced amount if you pay a lump sum, but they definitely accept monthly payments, or at least they did, with no extra percentage charges on top. I am not sure if I would go with the option of getting a credit card to cover a tax debt, it seems more likely that you would just end up with two forms of debt in the first place. I guess though for some people there aren’t a huge number of alternatives and when you have to do it you just have to do it??
Well, the credit card idea would only work if you could get 0% interest and pay it down before the end of the intro period. Otherwise, the IRS would offer a better interest rate. I think it’s interesting that in some places they will give you a year without interest. How understanding!