Filing on Time

• If you owe tax when you file your federal income tax return, and you file your return on time, your best option is to pay your tax in full when you file. You can send a check or money order along with Form 1040-V, the payment voucher. You also can pay your tax due electronically, either by credit or debit card, automatic withdrawal from your bank account, or via the Electronic Federal Tax Payment System. Fees might apply for credit or debit card payments.
  
  

Filing Late

• If you cannot file your federal tax return on time, file a Form 4868 to request an automatic six-month extension on your filing due date. Form 4868 does not extend your time to pay; if you think you're going to owe taxes, send your best estimate of the amount due by the first due date of the return. Penalties and interest apply to payments made after the first due date, even if the return is filed on an extension.
  
  

When You can't Pay

• Payment extensions or installment payments are available if you cannot pay your full tax due. You might qualify for a short-term extension of up to 120 days, which requires you to pay the amount in full plus interest and penalties by the end of the extension period. An installment payment agreement allows you to make monthly payments on your tax due, for up to 60 months. Interest and penalties, as well as a one-time user fee, apply to installment payment agreements. In extreme circumstances, the IRS might accept an Offer in Compromise, which allows you to settle your tax debt for less than the full amount owed.
  
  

Interest and Penalties

• The IRS assesses interest on any tax due that is not paid by the first tax due date, typically April 15 for individual taxpayers. Interest rates vary quarterly and equal the federal short-term rate plus 3 percent. In addition, a late-payment penalty of one-half of 1 percent applies per month until the amount is paid in full, up to 25 percent. If you do not file your return on time, an additional failure-to-file penalty of 5 percent per month applies.
  
  

How to Avoid Owing Taxes

• Ideally, when you file your tax return you will neither owe taxes nor receive a refund. That means that you are getting full use of your money throughout the year, while paying the appropriate amount to the IRS. To avoid owing taxes, you can increase your tax withholding from your paycheck or retirement payments, or you can file quarterly estimated tax payments using Form 1040-ES.