May 31, 2024

Two women researching paying back taxes

“Back taxes,” or taxes that are past due, sound scary—and they can be. You’re legally required to pay them to stay in good standing with federal, state, and local governments. And the longer you defer, the greater your risk of accumulating penalties and interest.

Paying back taxes may be the only way to:

  • Claim a refund from the IRS if you’re owed one
  • Protect future Social Security benefits
  • Avoid issues when applying for a loan, such as for the purchase of a home

The good news is you don’t need to wait to pay back taxes until some future time. Even if you’re low on cash, a personal loan may help you deal with past due taxes right now.

Read on to learn how a personal loan may help you escape the challenges and stress of unpaid taxes. 

Table of Contents

Figure out what you owe in back taxes

Because you are legally required to pay back taxes, putting it off will not help your situation. In fact, dealing with the problem now could bring much-needed relief.

The first step is finding out how much you owe. Here’s how:

  1. Gather all necessary tax documents, such as W-2s, 1099s, and receipts for deductions and credits.
  2. Request any missing W-2 or 1099 information1 by contacting the issuer of those forms or using Form 4506-T, Request for Transcript of Tax Return, to get information from the IRS.
  3. Download tax returns or forms for the appropriate year.
  4. Prepare and submit your tax returns (or get help from an accountant or tax specialist).
  5. Wait for a statement from the IRS with the amount you owe in penalties and interest.

Apply for a tax extension if you need one

Many people avoid filing past-due tax returns because they’re concerned that they’ll owe more than they can pay.

If you’re unable to pay what you owe right now, there are a few options. You may want to request a payment extension2  from the IRS (for up to six months3), set up an installment agreement4 (allowing you to pay over time), or see if you qualify for an offer in compromise5 (to pay less than the total amount due).

As you work through the options, you may want to plan ahead and work your payments into your budget. You may also want to factor in your tax situation for the current year.

If you don’t think you’ll be able to pay back taxes on your own, a personal loan may help.

Consider using a personal loan

Once you know the amount you owe and you’ve determined that you don’t have enough cash on hand, you may be able to avoid additional penalties and interest by using a personal loan.

Because a personal loan is a type of unsecured loan, you don’t need collateral to obtain the funds necessary to pay some or all of your back taxes. These funds are considered debt, not taxable income, so a personal loan will generally not affect your future taxes. Other benefits might include:

  • A fixed repayment term and a fixed interest rate that ensure one set regular monthly payment
  • Interest rates from 7.99% to 24.99% APR from Discover® Personal Loans (this depends largely on your credit score and history)
  • Money sent fast. For example, funds can be sent as soon as the next business day after your acceptance with a Discover personal loan. 

Stick to your plan

As frustrating as it may be to owe back taxes, the issue won’t disappear on its own. That’s why it’s best to act now to avoid extra complications.

But keep an eye out for tax scams from fraudsters claiming to collect back taxes. Remember that the IRS will generally contact you by mail, not by email or phone.

If you find yourself having to pay back taxes, take a deep breath and follow the steps above. Calculate what you owe, adjust your budget if needed, and take action. You’ll feel better when you do.

Already know how much you owe in taxes? Use our loan calculator to estimate what your monthly payments might be with a Discover personal loan.

 

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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Individuals should consult a tax professional. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates. 

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

1 https://www.irs.gov/newsroom/what-to-do-when-a-w-2-or-form-1099-is-missing-or-incorrect#:~:text=Taxpayers%20should%20first%20contact%20the,document%20or%20a%20corrected%20document
2 https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return
3 https://www.irs.gov/taxtopics/tc304#:~:text=You%20may%20request%20up%20to,the%20penalty%20for%20filing%20late
4 https://www.investopedia.com/articles/tax/09/form-9465.asp
5 https://www.irs.gov/payments/offer-in-compromise
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