A close-up of George Washington from one-dollar bill

If the amount of venting on social media is any measure, some taxpayers who’ve filed early are not at all happy to find they owe the IRS for the first time, or owe much more than they’d anticipated.

Most taxpayers are likely to end up with more money in their pockets this year. That’s because last year’s Tax Cut and Jobs Act nearly doubled the standard deduction, lowered federal tax rates, and offered a more generous child tax credit, among other changes.

More on Taxes

But others are finding themselves stung by the loss of some valuable itemized deductions and the elimination of personal exemptions. Some may also have miscalculated how much tax they should have withheld from their paycheck, so they end up owing money when they file their return.

“For the first time in my 42 years on this planet, I actually OWE federal tax instead of getting a refund,” griped a Twitter user named Heath.

“We usually get back $5000,” said another Twitter poster, who goes by the handle S/V August. “This year we got ZERO. We are not rich. Our family really needed that money.”

Don't Freak Out Quite Yet

If you need to pony up an unexpected sum—or if you haven’t filed yet but are afraid that you might—keep these thoughts in mind before you get too upset:

• It might not be the tax law’s fault. “The right question to ask is, Am I paying more than I would have if the law didn’t change?” says Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center, based in Washington, D.C. “Your circumstances can change; maybe you had a kid, got married, bought a house. All of those could affect your tax liability, and they have nothing to do with the new tax law.”

Gleckman’s group estimated that about two-thirds of Americans would pay $1,600 less under the new tax law, 5 or 6 percent would pay more, and the rest would pay about the same. 

• You may not have withheld enough. If you got a bit more in your paycheck last year but didn’t have your employer adjust your withholding, your tax bill reflects, in part, all those little extra payments added together.

• You may still be paying less than you paid in 2017. To find your effective federal tax rate, divide your total tax by your adjusted gross income (AGI). You’ll find your AGI on line 37 of your 2017 Form 1040 and total tax on line 63. On your 2018 Form 1040, AGI is on line 7 and your total tax is on line 15.

• You can get a second opinion. If you’re using do-it-yourself software, there’s nothing to stop you from doing your taxes again with another product to see if you get a different result. None of the online tax-prep products require you to pay in advance of filing. 

If you want to see another human tax preparer, hop to it now. Preparers’ calendars are filling up with folks who are concerned about the new law’s impact on their taxes.

If worse comes to worst, you can file now and file an amended return after April 15. Try this tactic only if you’re fairly sure that a new tax preparer’s results will be different enough to warrant an additional tax-prep fee. 

• You have two months to find the money. Even if you file your taxes now, you have until April 15 to pay. And as we show below, you have a number of options.

What You Can Do

Tax experts CR interviewed say that the most important thing to do if you owe the IRS is to file your return on time. 

“If you don’t file your return, the IRS can hit you with failure-to-file penalties and even a tax lien, on top of any interest you might owe,” says Tim Steffen, a certified public accountant and director of Advanced Planning at Baird Private Wealth Management, based in Milwaukee. “Extending your return doesn’t extend your time for paying your tax. Your taxes are still due April 15.”

When you consider how to pay, you can turn to a variety of sources, each with benefits and drawbacks:

• Take the funds from savings. Try to avoid taking a distribution from a retirement account, such as your IRA, Steffen advises. That only will compound your problems next tax season, when you’ll owe income tax on the amount withdrawn, plus a 10 percent penalty if you’re younger than 59½.

• Use a credit card with a 0 percent interest intro offer. If it’s available to you, this option could work much better than using a high-interest credit card that’s already in your wallet. Just be sure to pay off your debt before the rate expires.  

Keep in mind, too, that if you file electronically, using a credit card could cost you a bit more than paying out of pocket. The IRS authorizes just a few companies to process electronic credit and debit card payments, and they’ll charge you credit card processing fees that this year are as high as 1.99 percent of your balance, with a minimum fee of $2.50. On a $2,000 tax bill, you’d have to pay an extra $39 if you paid by credit card.

• Use a credit card you already own. You can delay the actual payment by a month or so and maybe earn rewards points, but keep in mind how that gambit could backfire.

If you can’t pay your credit card bill on time and in full, you’ll be subject to the card’s annual interest rates. According to CreditCards.com, the current average credit card rate is 17.55 percent. 

And if you’re paying taxes using a rewards card, keep in mind that the typical credit card reward is 1 percent; on a $2,000 tax payment, that’s worth $20. If you’re late on a payment, you’re likely to wipe out that reward with penalties and late fees.

• Borrow against your home or from a bank. A home equity line of credit, at an interest rate far lower than that of a credit card, could be an option. But keep in mind that you no longer can deduct the interest from those borrowings that are not related to building, buying, or improving your home. You may also be able to get a personal loan from your bank or credit union, Steffen says.

Ask for IRS Help

The IRS also offers a number of payment options, some of which are far less costly than than paying interest on a credit card.

Request a payment extension. If you haven’t applied for a payment extension before, this could be an option. After you file your tax forms on time without payment, the IRS will contact you to ask whether you would be able to pay within 120 days. If you choose this option, the agency will charge you a monthly fee of 0.5 percent of the amount owed.

Make a partial payment. Even if you can’t pay the whole tax bill, pay as much as you can. This will cut down the size of the penalty and interest you’ll have to pay the IRS.

Such an approach could backfire, though, if the partial amount you owe is large and you pay it using a credit card, says Mike Velazquez, a CPA at The Accountancy, based in Glendale, Calif. “It would make no sense for you to put that on a credit card to carry a compound interest rate of 29 percent and potentially have your credit rating take a hit.”

In that instance, you’re better off arranging to pay off the entire amount using an IRS-sponsored installment plan with its lower interest rate, he says. Unlike credit-card companies, the agency doesn’t report on its debtors to credit bureaus—as long those taxpayers aren’t subject to any IRS liens or other serious collection situations, Velazquez says.

Consider an installment plan. This is a good option if you need more than 120 days to pay your tax bill and you owe less than $50,000.

When you file your tax return, fill out IRS Form 9465, “Installment Agreement Request.” The IRS will then set up a payment plan for you, which can last as long as six years. You may incur a setup fee, which ranges from about $31 to $225, depending on how much income tax you owe. The fee can drop significantly if you 
arrange for direct payments from your bank account. 



“It’s the easiest way to go as long as you submit a reasonable request to the IRS,” says Larry Pon, a CPA based in Redwood Shores, Calif. As a rule of thumb, he says, divide the balance owed by 6 and agree to pay that amount each year for six years. If you end up needing installment plans for more than one year, hire a tax attorney or CPA to negotiate a workable plan with the IRS.

There’s another benefit to signing up for an installment plan: If you’re unable to make payments, the failure-to-pay penalty, which begins to accrue the day after the tax-filing deadline, will grow at just 0.25 percent per month—compared with 0.5 percent if you don’t sign up for the agreement.

Ask for leniency due to hardship. You’ll need to prove that paying your tax debt would cause you a tremendous burden, perhaps forcing you to sell your home. But this could get you more time to make your payment, and in some cases the IRS will also waive any payment penalties. Read Form 1127, “Application for Extension of Time for Payment of Tax Due to Undue Hardship,” to see whether you meet the requirements.

There’s no rule book on the circumstances that qualify you for leniency, Velazquez says. “The IRS is getting tougher on what it agrees to,” he says. “Ultimately it is based on facts and circumstances of each case.”

Apply for an “offer in compromise.” This is a way to reduce your tax debt permanently. The IRS says that an offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if doing so creates a financial hardship. Typically the debt has to be at least three years old, Pon says.

Before applying for an offer in compromise, the IRS requires applicants to have filed all their tax returns. So if you didn’t file in previous years, you will need to finish those missing returns. It also requires that you pay the current year’s estimated tax payments. Refer to the IRS’ Booklet 656-B, “Offer in Compromise,” for details on the application procedure. To see whether you could be a candidate, the IRS offers a prequalifier online tool. There’s a $186 application fee.

Offers in compromise are rarely granted. “You are asking the IRS to essentially erase what you owe them,” Velazquez says. “Understandably, they do so under the rarest of circumstances. But if there is reason to believe you don’t owe what they say you owe or there is doubt as to whether IRS will ever collect from you—say, you’re terminally ill—then they will listen to plausible arguments to reduce your debt.”

Plan for the Future

To avoid the same surprise next year, check the IRS’ Withholding Calculator or talk to a tax expert about how much to withhold from your paycheck or how much in quarterly payments to make for 2019, advises Eric Bronnenkant, head of tax at Betterment, an online financial adviser. 

Seniors can even direct a portion or all of their once-a-year, required minimum distributions from retirement accounts toward their taxes. The IRS treats those payments as if the seniors had been making quarterly payments year-round; that can help seniors avoid penalties they otherwise might pay for not paying every quarter.

Of the pain you may be facing now, Bronnenkant says, “learn for next year.”