A quarter of taxpayers expect to owe the IRS — how to avoid going into debt to pay your taxes

Tax season officially begins today, as the IRS starts accepting individual tax returns for tax year 2023. 

Three-quarters (75%) of filers expect a refund, according to a new survey from Intuit Credit Karma, with more than a quarter (27%) of them predicting it will be larger than last year. 

Other filers, however, are feeling anxious as the April 15 tax deadline looms: Twenty-three percent of those who will owe money to the IRS said they’ll have to take on debt to settle their balance, according to the survey, conducted by Qualtrics between Jan. 22 and Jan. 24, 2024.

Whether you plan on a refund or are worried about how to pay your tax bill, CNBC Select has some advice to help you survive tax season. 

Ongoing inflation has forced a lot of Americans to tighten their belts: More than a third (37%) of taxpayers expecting refunds say they’ll use at least some of it to cover necessities like rent and groceries. Another 34% hope to pay down credit cards, student loans, medical bills and other debts.

If you’re counting the days till you get your refund, a Refund Advance Loan from H&R Block can make up to $3,500 available the day you file, with no loan fees or interest. 

H&R Block has several self-filing options, including a free online version that’s best suited for simple returns and a deluxe edition if you need to itemize your deductions. (The deluxe package costs $44 for federal returns and $45 per state filing.)

New for 2024, customers can import prior year tax data from TurboTax to any H&R Block DIY product just by inputting the telephone number associated with their TurboTax account.

With any H&R DIY plan, on-demand assistance is available for an additional charge.

Since the IRS begins assessing interest and penalties right after the April 15 deadline, ignoring your tax bill is costly. If you don’t have the cash on hand, though, there are several options available.

Enroll in an IRS payment plan

The IRS has both short-term and long-term installment plans to help taxpayers square their accounts. You’ll still have to pay some interest and penalties, but you'll avoid more serious consequences.

If you’re drowning in tax debt, you can apply for an offer in compromise (OIC), which allows to you to settle your tax bill for less than the amount owed. You can pay it in one lump sum within five months or in installments over 24 months.

Pay with a credit card

The IRS only accepted about a third of OIC requests in 2022. So, if you want to avoid penalties, you might consider paying your taxes with a credit card. 

Of course, if your card has a high APR, you’re just trading one mounting debt for another. One option is applying for a card with a 0% APR introductory offer. The Wells Fargo Reflect® Card has an introductory 0% APR on purchases and qualifying balance transfers for 21 months from account opening (18.24%, 24.74% or 29.99% variable APR thereafter).

So, you'd have almost two years to pay off your bill before interest kicked in.

Pay with a personal loan

Don't think you can get approved for a 0% APR credit card,? It might be easier to score a personal loan.

Avant has loans ranging from $2,000 to $35,000 and will consider borrowers with credit scores under 600. The online lending platform offers terms of up to 60 months, depending on your application, loan amount, interest rate and monthly payment.

Be sure to compare the rate and fees with what you would pay the IRS through an installment plan, taking into account how long it will take you to settle your debt.

The IRS has begun accepting individiual federal income tax returns. For many Americans expecting refunds, that money will go toward necessities like groceries or to pay down outstanding debts. Meanwhile, nearly a quarter of filers who will owe money expect to go into debt to pay their tax bill.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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