What’s the Easiest Way to Pay Your Tax?

Although it’s been almost two months since the April 18th deadline, I know there are many people who have yet to pay the tax owed. Any amount owed is now considered late (even if you filed an extension). In order to minimize any late payment penalties (0.5% per month) and interest (7% per year), you can utilize one of the following to pay your balance due:

IRS Direct Pay

Using the IRS Direct Pay website is usually the easiest way to pay a balance owed. Once you select the tax year in question and verify your identity, you can schedule an automatic bank transfer.

Debit or Credit Card

The IRS has paired with three payment processors that accept debit or credit transactions. There is a fee associated with each transaction, but payments can be made online or over the phone.

Electronic Federal Tax Payment System (EFTPS)

EFTPS is mostly used to pay business taxes, but individuals can sign up and pay personal income tax too. You must register online and wait for a PIN to arrive in the mail to verify your account. Once your account is activated, you will be able to submit a payment. If you are looking to make a payment immediately, this is not the option for you.

Electronic Funds Withdrawal

An automatic withdrawal is only available for those who have yet to file. Commercial tax preparation software provides the option to include your bank information with the filing of your return. You can select the day you would like the withdrawal to occur and the IRS (or state agency) will automatically debit your account for the amount owed.

Check or Money Order

If you are not able to verify your identity or register for EFTPS, you can mail a check made out to the U.S. Treasury. While not the preferred method of making a payment (the IRS is notorious for misplacing mailed items), it is still a viable option to submit tax owed. 

You should include your name, Social Security Number, address and tax year in question on the check. The check should be mailed certified to ensure delivery.

Cash

Another option for those who are unable to pay online. The IRS partners with certain retailers who accept cash on their behalf. Each payment is limited (around $1,000), so this is not a recommended method for those with larger balances.

There are certain IRS offices that will accept cash as well.

Installment Agreement

If you are unable to pay the balance due in its entirety, you can apply for an installment agreement. The IRS offers short-term (180 days or less) or long-term (up to 6 years) plans. Although penalties and interest continue to accrue, an installment agreement could prevent a lien or levy from being placed on your assets.

For a more detailed look into long-term plans, click here.

These are the main options to pay your federal tax. Don’t forget, you could owe state (or local) tax as well. Although it varies by state, most will only accept payments online or via check (unless you live in Colorado, which began accepting cryptocurrency in 2022). If you are unable to make a payment in full, I suggest reaching out to your local tax agency to discuss the possibility of a payment plan, as offerings vary by state.

You can also use many of the above services to make a federal estimated tax payment for 2023. The second payment is due June 15th, so you still have time to get that done before the end of the day.