Two women researching paying back taxes

“Back taxes,” or taxes that are past due, sound scary—and they can be. You’re legally required to pay them to stay in good standing with federal, state, and local governments. And the longer you defer, the greater your risk of accumulating penalties and interest.

Paying back taxes is also the only way to:

  • Claim a refund from the IRS if you’re owed one
  • Protect future Social Security benefits
  • Avoid issues when applying for a loan, such as for the purchase of a home

The good news is you don’t need to wait to pay back taxes until some future time. Even if you’re low on cash, a personal loan can help you deal with past due taxes right now.

Read on to learn how to leverage this powerful tool and escape the pitfalls—and stress—of unpaid taxes.

First, find out what you owe

Having to pay back taxes often comes with a wave of frustration and anxiety. But it is required by law and dealing with the problem now could bring much-needed relief.

The first step is finding out how much you owe. Here’s how:

  1. Gather all necessary tax documents, such as W-2s, 1099s, and receipts for deductions and credits.
  2. Request any missing W-2 or 1099 information by contacting the issuer of those forms or using Form 4506-T, Request for Transcript of Tax Return to get information from the IRS.
  3. Download tax returns/forms for the appropriate year.
  4. Prepare and submit your tax returns (or get help from an accountant or tax specialist).
  5. Wait for a statement from the IRS with the amount you owe in penalties and interest.

Request an extension if you need one

Many people avoid filing past due tax returns because they’re concerned that they’ll owe more than they can pay.

Don’t let this fear stop you. If you can’t pay what’s due right now, you can request a payment extension from the IRS (for up to 120 days), set up an installment agreement (allowing you to pay over time), or see if you qualify for an offer in compromise (to pay less than the total amount due). You can also include a line-item in your budget for these payments.

And if you don’t think you’ll be able to pay back taxes on your own, a personal loan can help.

Learn about personal loans and choose a lender

Once you know how much you owe and you’ve determined that you don’t have enough cash on hand—perhaps because back taxes snuck up on you—you can still avoid additional penalties and interest by using a personal loan.

Because a personal loan is a type of unsecured loan, you don’t need any collateral to obtain the funds necessary to pay some or all of your back taxes. Other benefits include:

  • Fixed term and fixed rate to ensure a set regular monthly payment
  • Interest rates starting at 5.99% up to 24.99% from Discover Personal Loans (this depends largely on your credit score and history)
  • Fast funding, providing you with the money you need to pay your back taxes quickly

Follow the plan

As frustrating as it may be to owe back taxes, this problem won’t disappear on its own. That’s why it’s smart to act now, so you can avoid extra complications.

Just beware of tax scams from fraudsters claiming to collect back taxes. According to the Federal Trade Commission, the IRS will initiate contact by mail about unpaid taxes, not through email or the phone.

Remember: If you find yourself having to pay back taxes, take a deep breath and follow the steps above. Calculate what you owe, make a plan for paying back the money, and take action. You’ll feel much better when you do.

Already know how much you need to pay in back taxes? Use our loan calculator to estimate what your monthly payments might be with a Discover personal loan (based on your requested loan amount and credit score).  Estimate Payments