Illustration for the article titled How To Choose A Payment Plan When You Owe the IRSPhoto: Fizkes (Shutterstock)

You may have forgotten that your unemployment benefits were taxed, or that you owned stocks that paid taxable dividends that were hidden somewhere in your portfolio – either way, a tax bill can surprise you, and sometimes when you can least afford it. If you can’t pay your tax bill on May 17th, here are some things to keep in mind IRS payment plans to avoid the worst penalties imposed by the IRS.

What repayment options does the IRS offer?

The IRS (and most state tax authorities) offer payment plans directly through their websites or as an option when filing your tax return electronically. Fortunately, there are a few ways to pay in installments, depending on how quickly you can pay off the balance, as well as the total amount owed.

One caveat: with repayment plans, you’re still on the hook for setup fees and ongoing interest even though the rate you pay goes down from 0.5% to 0.25% per month (for more on IRS penalties, Click here). A repayment plan will also help you Avoid garnishments or the IRS filing claims on your property. Otherwise, the only way to avoid additional payment is to pay your tax bill on time. Here’s a look at the plans::

  • Short term payment plan: The payment term is 120 days or less and the total amount owed is less than $ 100,000 in combined taxes, penalties and interest. There is no setup fee for this plan and interest will accrue until the balance is paid in full. The penalty for non-payment is a maximum of 25% of the unpaid tax amount until the remaining amount is paid in full.
  • Long-term payment plan: When the payment term is longer than 120 daysIt can be repaid in monthly payments for up to six years provided the amount owed is less than $ 50,000 in combined taxes, penalties, and interest (again, there is a maximum non-payment 25% penalty until the balance has been paid in full). You can either set up monthly automatic withdrawals directly from your checking account (the setup fee is $ 31) or go with non-automated (the setup fee is $ 149 Setup Fee – or $ 43 if you qualify as low income Earner).

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Can you use a 0% APR credit card? to pay your taxes

You could Pay your tax bill with a credit card that includes an introductory 0% interest offer for the first 12-18 months, although that’s a risky move. In this case, you are only transferring low-interest debt to a credit card, the interest rate likely to be between 10% and 25% after the introductory offer expires. In other words, you would just buy yourself extra time and you want to be 100% sure that you can remove that balance from the credit card when the balance is due. Otherwise, you only risk more debt later.