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What to Do If You Can’t Pay Your Tax Bill in Full

Image: A woman looks at a bill

If you owe taxes and can't pay, filing on Tax Day is the best way to save. Peter Dazeley / Getty Images

It's the 11th hour and you're slowly, but surely getting those 2016 taxes done. As you enter those W-2s and W-9s into your favorite tax prep software, you see it out of the corner of your eye: Your once destined-for-vacation refund is now squarely in the dreaded "taxes due" column. Suddenly, with just hours to spare, you find yourself scrambling to come up with hundreds or thousands of dollars you weren't quite prepared to pay.

If you're knee-deep in tax-related turmoil, take a deep breath and resist the urge to panic. There are ways to make the best of a bad situation. "Problems don't get better if you ignore them," says Jean Chatzky, NBC News' financial editor. Chatzky sat down with NBC News BETTER on the night before Tax Day to share six of her best tips for dealing with a surprise tax bill.

  1. File, file, file. Although you maybe tempted to slam your computer shut and forget about filing for a few more weeks, don't. Chatzky says "You have to file. Not filing just makes everything worse and there are consequences, like tax penalties." If you're in the middle of tax prep and you're not sure what to do next, call the IRS' tax help line. They'll walk you through the best course of action. But, remember: always file your taxes.
  2. Find the cash to pay in full if you have it. Chatzky says that cash is the always the best way to pay for your taxes. Why? You'll only pay what you owe, no more. Rather than paying with plastic, which comes with additional fees if you don't pay it off right away, take a hard look at your monthly expenses for that extra dough. "If you're pre-paying a mortgage or student loan (which have lower interest rates), consider using that money toward your tax bill this month," Chatzsky advises. Or, you could just pay the minimum on your credit cards this month so that you can pay the tax bill now and get it out of the way.
  3. Pay part of your taxes now. If you have only part of your tax bill available in cash, pay as much as you can to reduce interest charges and a late payment penalty.
  4. Consider the IRS' installment plan. If you owe less than $10,000 and can't come up with the cash, take the path of least resistance and go for the installment plan. "It's almost automatic and the fees are almost always less than a credit card," Chatzky says.
  5. Do math on credit cards and loans. If you need to tap into credit cards, a home equity line of credit, or take out a loan to pay your taxes, the most important thing is to "compare the fees and look at the real numbers of what it's going to cost you" says Chatzky. And if you're tempted to use a 0% interest credit card, she says "it's not so much the interest rate, but the cost of the transaction, which is usually a couple of percentage points" which can add up, too.
  6. Get ahead of next year's tax bill. To avoid a tax bill in 2018, "the first thing you should do is look at your withholding on your W-4. If you're income is relatively stable, it makes sense to increase your withholding to enough so you're not surprised again next year," Chatzky says. Or, you can create a Tax Day slush fund and funnel as much as you can into an automatic savings plan starting today.