Long story, but I owe about 17k in taxes for 2025.
I don't have that much $$$ in savings anymore.
Am I better off taking up a payment plan with the IRS,
or seeking out a loan to pay them? I have good credit and only owe less than 2k in cc debt. We have about 100k in equity in our house, so I'm considering taking up a HELOC. Probably about 6pct APR. Id only take out enough to pay the taxes, and some for home repairs, so let's say a 25k balance.
I don't want to do a cash out refinance because our mortgage interest is 5pct.
What's the IRS gonna charge in interest and possible penalties?
Pretty new to owing this much. Usually break even or have a small balance due
Owe the IRS this year. Need advice
byu/VikingFanAZ10 inpersonalfinance
Posted by VikingFanAZ10
6 Comments
>Am I better off taking up a payment plan with the IRS,
I doubt you’ll find a loan more favorable than the repayment plan.
>Pretty new to owing this much. Usually break even or have a small balance due
Update your W4 so that you owe little to nothing.
[https://www.irs.gov/individuals/tax-withholding-estimator](https://www.irs.gov/individuals/tax-withholding-estimator)
Just do the payment and pay it down as quickly as possible. They will charge interest, but it’ll be less than what a personal loan would cost you.
Pay whatever you can towards your tax bill before April 15. In June, call and set up a payment plan with the IRS. They’ll charge something like 4% annual interest rate, and a penalty of 0.25% per month, but that’s going to be less than a HELOC. Don’t sweat it too much; lots of people end up owing taxes, and as long as you are proactive about dealing with it in good faith, it’s not a big deal.
Obviously you also want to be proactive about figuring out how this happened, and to ensure that you are paying your taxes as you go in the future.
If you have the equity and a good credit score, the HELOC is usually the “cheaper” math because it kills the IRS penalties.
But if you’re worried about income stability, stick with the IRS Plan they are surprisingly flexible about “hardship” adjustments compared to a private bank.
Pay as much as possible on or before April 15th:
https://www.irs.gov/payments/pay-personal-taxes-from-your-bank-account
Keep making voluntary payments whenever you want.
Assuming you e-file a complete and correct return, IRS will issue the first notice demanding full payment in June:
https://www.irs.gov/individuals/understanding-your-cp14-notice
With the notice in hand, access Online Payment Agreement at IRS.gov and set up the payment plan that meets your needs:
https://www.irs.gov/payments/online-payment-agreement-application
IRS offers short-term (180 days or fewer) and long-term (seven months or more) plans, each with varying terms and conditions.
The Failure to Pay penalty rate is 0.5% of the unpaid tax, charged per month or part of a month. If you set up the long-term Installment Agreement, the rate is generally reduced to 0.25%.
The IRS interest rate will be 6% per year starting April 1st, compounded daily on the unpaid tax and penalties. This rate can be increased or decreased on a quarterly basis.
For 17K, as long as you sign up for direct debit to make your plan payments (and don’t miss any payments), the IRS will not file a lien and your credit report & score won’t show anything. If you take out a loan, that’s going to show up on your credit report.
The IRS interest rate on payment plans for underpayment is dropping from 7% to 6% on April 1st. If you can get a loan for under 6% ultimately it will save you some money along the way, but a loan at 5.9% that appears on your credit reports, and 6% to the IRS that doesn’t report will come down to figuring out what’s best for your situation.
If you were already on the path of considering a HELOC for home repairs anyway, that could be the better option and would avoid the hassle of being further obligated to the IRS for the next few years.