You’re almost done with your federal income tax return, and you’re already thinking of ways to spend your refund. Then, the unthinkable happens — instead of a refund, you find that you owe $3,000. Or perhaps you’ve just received an IRS notice in the mail claiming that you owe $9,000 for the retirement plan distribution you took two years ago. You thought it was tax free at the time. Whatever the reason, you’re now in the unenviable position of owing money to the IRS — and you don’t have the cash. What do you do now?

First, don’t panic. You have several options. That said, however, don’t put your head in the sand. The IRS won’t go away, and the amount you owe will only grow larger if you procrastinate. If you ignore your tax bill entirely, not only will interest and penalties accrue, but the IRS may go after your assets and wages as well. You can avoid all of that unpleasantness by finding a way to pay your taxes. Here are some possibilities.

Pay what you can afford when you file the return, then wait for a bill 

Perhaps you’re between paychecks right now, or maybe you just paid a substantial car repair bill. For one reason or another, you’re suffering from a short-term cash flow problem. You’ll eventually have the cash to pay your tax bill — you just don’t have it right now. If that’s your situation, you may want to consider the following approach. First, pay as much as you can when you file your tax return. This will help reduce the penalties and interest that you’ll be charged.

Next, wait for the IRS to send you a bill for the remaining balance. This should take roughly 45 days. Perhaps by then you’ll have enough cash to pay the bill in full. If not, call the number or write to the address on the bill you’ve received, or visit the nearest IRS office to explain your situation. Based on the circumstances, you could qualify for an agreement to full pay within 60 or 120 days. The IRS is willing to offer these short-term agreements to full pay in order to assist in tax debt repayment. You can request an agreement length depending on the specific situation.

One problem with this approach, however, is that interest and penalties continue to accrue on the unpaid balance. So, while you may buy yourself some time, the total amount that you’ll end up paying may be much higher than it would have been if you had paid your tax bill in full when due.

There’s another thing to keep in mind — filing an extension will do you no good. An extension simply extends the time to file your tax return; it doesn’t extend the time to pay your tax. Whatever you do, file your return on time. A timely filed return can reduce your subsequent penalties.

Borrow money from a relative or take out a loan to pay your bill

One of the easiest ways to pay your tax bill may be to borrow the money from a relative or close friend. Borrow whatever you must to pay the bill in full, and draw up a payment plan to reimburse your benefactor. By paying the bill in full, you’ll be able to avoid IRS penalties and interest. And you may not have to pay interest to your relative or friend. However, be careful if you borrow more than $10,000; the below-market interest rules may trigger certain tax consequences.

If you can’t borrow from a relative or friend, consider taking out an unsecured bank loan or tapping into a home equity line of credit. Although the interest rates may be higher than interest that a relative or friend may charge, the interest will probably be less than the interest and penalties owed on the unpaid tax.

Pay by credit card

Another option is to pay your taxes by credit card. Obviously, you’ll want to use the card with the lowest interest rate. If you’re approaching your credit limit on a given card, you can split payments between two different credit cards.

Paying by credit card allows you to pay your tax bill on time. You’ll avoid both penalties and interest for late payment of taxes. However, the interest rate that your credit card company charges may be higher than what the IRS charges on installment payments or late payments.

The IRS website provides a list of payment processors with links, phone numbers, and the credit cards that are accepted, as well as the associated fees. Keep in mind that any fee charged by the company processing the payment will be in addition to any interest that your credit card company charges.

Pay by installments

An installment agreement is a monthly payment plan with the IRS. It’s the most widely used method for paying an IRS tax debt. The IRS will generally accept the payment of your tax liability in installments if your total tax liability (not counting interest, penalties, and other additions) is $10,000 or less, and if you meet a few other requirements.

To enter into an installment agreement, contact the IRS by telephone, mail, or online, and explain that you’re unable to pay your tax bill in full. The IRS will send you Form 9465, Installment Agreement Request, to fill out, and the fee is $225 ($107 for direct debit installment agreements). Now you can also enter into an online installment agreement. The fee for an online payment agreement is $149 ($31 for a direct debit online payment agreement). For any of these payment methods, you may qualify to pay a reduced fee of $43 (if lower than the regular fee) if your income is below a certain level. Your tax liability may generally be spread out over a period of 72 months, and payments can be automatically withdrawn from your bank account or made through payroll deduction. You’ll generally be expected to pay the maximum installment amount that you can afford. Although you won’t avoid interest and penalties with this payment method, you’ll avoid more severe collection action.

Propose an offer in compromise

If you meet certain criteria, such as doubt as to liability or doubt as to collectibility, you may want to propose an offer in compromise to the IRS on Form 656. This is a negotiated settlement between you and the IRS. Here, the IRS may agree to accept a lesser figure from you in full satisfaction of your tax debt. If you owe $20,000 in taxes, you might, for example, be able to settle for $5,000. However, there’s no guarantee that the IRS will accept your offer. There’s also generally a lot of paperwork to submit, including various IRS forms, financial statements, pay stubs, and bank records. And, there’s generally a non-refundable up-front application fee of $186, and a non-refundable initial payment requirement (both the application fee and the initial payment are waived for individuals who meet certain income requirements).

If you feel overwhelmed by the amount of your tax bill, though, and if you meet the criteria, an offer in compromise may be a good solution. It’s important to note, however, that the IRS won’t accept an offer if the IRS believes that the liability can be paid in full or through an installment agreement.

Bankruptcy: it’s no panacea, but it might help

Bankruptcy is a way to resolve your debts when you’re unable to pay them. Although many taxes can’t be avoided in bankruptcy, declaring bankruptcy will suspend most collection activities by the IRS. In some cases, interest and penalties will also cease to accrue. Finally, reducing your overall debt burden by eliminating unsecured debt (e.g., credit card balances) through bankruptcy can leave more money to pay your IRS tax bill.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

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