If you can’t pay your taxes, you have several options available.
The closest thing to a loan from the IRS is an installment agreement. An installment agreement lets you pay the taxes you owe in monthly payments.
The IRS doesn’t check your credit to get an installment agreement, and you can usually automatically qualify unless you owe more than $50,000.
The catch with an installment agreement is you have to file all future tax returns and pay all future taxes on time. If you don’t, you could default on your payment plan and owe additional penalties.
Another option you have is to pay your taxes with a credit card.
Credit card interest will usually cost you more than an installment agreement unless you pay your balance off within a few months. If it will take you longer to pay off the balance, credit cards will usually only come out ahead if you have a low interest rate offer on your card.
Another advantage of paying with a credit card is the IRS considers your tax balance paid in full as soon as you charge it to your card. You won’t have additional IRS penalties or have to follow strict rules like with an installment agreement.
If you pay the IRS on time, you can also maintain eligibility for things like first-time penalty relief in case you have tax problems in the future.
I’ve never heard of a personal loan specifically to pay the IRS or other tax balances. Many people do use general personal loans or home equity loans to pay taxes.
Depending on your credit, a personal loan could be cheaper than an IRS installment agreement even if you’ll need several years to pay it back.
Like with credit cards, your payment date in the eyes of the IRS is when you pay the IRS with the funds from the loan. If you take out the loan and pay the IRS before your taxes are due, the IRS won’t consider your payment late.
Of course, both personal loans and credit cards usually require a credit check and can affect your credit score.
You may also want to use a 401(k) loan to pay taxes. There are no special rules for 401(k) loans when you can’t pay taxes.
If you don’t repay the loan under the terms provided by your 401(k) plan, the unpaid loan will usually count as an early distribution subject to taxes and penalties.
Like with other loans, the IRS will count your taxes as paid as soon as you send the IRS the funds from the loan. The IRS doesn’t care if you paid cash from your checking account or took out a loan.
What is a refund advance?
A refund advance is when the IRS owes YOU money that you want to get sooner.
The IRS doesn’t directly issue refund advances or have a way to speed up your refund.
Several tax preparation companies offer private refund advances where they give you your refund when you file. In exchange, you agree to let them receive your refund from the IRS. You’ll also usually pay a fee of around $50 to $100 or more.
In most cases, the money you lose to refund advance fees works out to a worse interest rate compared to using a credit card to cover expenses you need the advance for.