Three Options When You Can't Pay Your Taxes

You filled out your tax forms and the final number was a surprise--a big balance owed to the Internal Revenue Service. Don't panic, says tax expert Daniel J. Pilla, founder of TaxHelpOnline.com and author of The IRS Problem Solver. It's very possible that the IRS will work with you, but you need to know your options.

File an extension to pay. A little-known provision allows taxpayers suffering severe hardship additional time to pay their taxes without incurring penalties, although interest continues to accrue at the standard federal rate plus 3 percent per month. Form 1127 Application for Extension of Time for Payment of Tax Due to Undue Hardship isn't automatic, like the filing extension, and you'll have to have extenuating circumstances to be approved. However, Pilla says, today's economic climate gives many people a reasonable chance. "If you've suffered an illness, job loss, death in the family or other extreme circumstances and you can't pay your taxes, it's worth trying," he says.