Tax payment options for when you owe the IRS

If you're one of the millions of taxpayers who hasn't filed your tax return yet, it's probably because you owe Uncle Sam some more money.

But here's the thing: Even though you don't have to file your tax return by the April 18 deadline (you can file a Form 4868 for an automatic six-month extension), you still must pay the 2015 tax you owe by April 18 -- or face additional penalties and interest.

So, what are your options to pay the tax you owe by the deadline?

First, if you don't have the cash on hand right now, but you do expect to have it in a few weeks, you might consider using the Credit Card Payment Option.

You can do this through providers such as Official Payments Corp., WorldPay US and Link2Gov Corp. You can charge your taxes on a Visa, MasterCard, Discover or American Express card. The upside is that you may earn cardholder rewards like airline travel or cash back. But using this option isn't free. Paying taxes with a credit card comes with fees that almost always offset any rewards.

The credit card sponsor will charge you a convenience fee because the IRS doesn't pay the sponsor as the merchant. These fees can range from 1.87 percent to 2.25 percent of the amount charged.

So, if you owe $3,000 and you pay by credit card, the convenience fee could be about $70. Charge $10,000, and the fee would be about $230. Charge $50,000 (which might qualify for a free airline ticket on some airlines), and the fee is about $1,150. That would typically be more than the cost of buying the plane ticket outright.

However, the fee may be a deductible business expense when the taxes paid are in connection with your business income. Otherwise, you can deduct the fee as a miscellaneous itemized deduction, subject to the 2 percent limit on Schedule A.

Another alternative if you're short on cash is to apply for an Online Payment Agreement or file a Form 9465, Installment Agreement Request. That will set up a monthly installment payment agreement, allowing you to reduce or eliminate penalties and interest for paying late.

For those who file electronically, using the electronic funds withdrawal feature is the most convenient way to pay what you owe. It's also free. You or your tax preparer will need to enter into the tax prep software the account and routing number for the bank account you'll use. You can specify the date you want the tax to be debited. Just make sure it isn't later than April 18 to avoid a late payment notice, interest and penalties.

Also, make sure to use the "EFT routing number" for this option and not the "wire transfer routing number." Using the wrong routing number can result in a failed payment. If you're unsure which routing number to use, ask your bank.

Finally, if you don't have a bank account, or you prefer to pay the tax with cold hard cash, the good news is, now you can. Using the IRS' Official Payment site, select the PayNearMe option. When you enter the required information, the IRS will send you an email with a link to your payment code and instructions.

You take the payment code and instructions to the nearest retail store that accepts and processes cash payments to the IRS. The clerk will scan your code, you pay and get a receipt that's your official proof of payment. This new option is currently available only at participating 7-Eleven locations in 34 states.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.