February 2020

This article was last updated on February 10, 2023.

The IRS has an entire decade to collect your taxes. So, whether you owe $5,000 or $50,000 it’s best to start paying down your bill as soon as possible. Avoiding payment can lead to the IRS taking money directly from your wages or bank account, or even putting a federal tax lien against your property, which may impact your ability to take out loans, access your home equity, and more.
If you owe money this year or from prior years—don’t panic. Here are some important updates and options to get your finances back on track.

What’s New for 2023 Tax Season (for the 2022 tax year)

Important Tax Dates:

April 18: Filing deadline for most U.S. residents
October 16: Filing deadline if you were granted an extension

2022 Tax Bracket Updates

The federal income tax brackets have changed for 2022, so your first step should be understanding what bracket you fall into this year.

Form 1099-K Reporting Changes

If you received any third party payments in 2022 for goods or services that exceeded $600, you’ll get a Form 1099-K for payment card and third party transactions that you’ll need to fill out. However, personal reimbursements or gifts from family or friends received through third party platforms are not taxable. In previous years, Form 1099-K was only issued if a taxpayer completed more than 200 transactions in a year that totalled more than $20,000.

Smaller Returns

Overall, largely due to the scaling back of tax credits to 2019 levels — including the Child Tax Credit, Earned Income Tax Credit, and the Child and Dependent Care Credit — you can expect a lower return than in previous years.

No Above-the-Line Charitable Deductions

Another change for the 2022 tax season is that taxpayers are no longer able to deduct up to $600 for charitable donations like they were in 2021.

Premium Tax Credit Updates

While many of the adjustments for this tax season have restricted or narrowed eligibility and credit amounts, the premium tax credit may actually be available to more 2022 taxpayers due to the expanded criteria. For 2022, to be eligible, you must:

Have a qualifying household income amount
Not be claimed as a dependent by another person
Not file your return under the status of Married Filing Separately (except in certain circumstances involving domestic abuse or spousal abandonment)
Meet certain requirements around health insurance

Clean Vehicle Credit Updates

You may be eligible for a nonrefundable credit of up to $7,500 if you purchased a qualifying, new plug-in electric vehicle for your own use in 2022 or prior.

Child Tax Credit Updates

For the 2022 tax year, the child tax credit has reverted to $2,000 per child under age 17 who is claimed as a dependent on your return. Note that if your modified adjusted gross income (AGI) exceeds $400,000 on a joint return or $200,000 on a single/head-of-household return, your credit amount will be reduced by $50 for each $1,000 you earn beyond this threshold.
Finally, the credit is no longer fully refundable in most cases — except for select lower-income taxpayers, for whom up to $1,500 may be refunded.

If you owe more than you expected this tax season, there are a few things you can do to alleviate the financial burden.

1. File—Even if You Can’t Pay in Full

As you get ready to prep your 2022 taxes—and any back taxes you still need to file—remember that filing can help reduce the amount of money you owe in the long run. As H&R Block notes, the IRS imposes a hefty “failure to file” penalty, equal to 5% of the unpaid balance each month, up to 25% of your unpaid taxes. With the added penalties, that means the interest accruing on your unpaid taxes will be higher, too.

2. Request an Extension

If you need more time to organize files for your taxes, or come up with a game plan because you know you owe more than you can pay, you can file for a six-month extension.

While filing an extension for your 2022 taxes doesn’t buy you more time for paying taxes (you still need to estimate the amount you owe and pay it), it does ensure you won’t begin to accrue late-filing or late payment penalties right away. As TurboTax explains, “if you pay less than 90% of the tax you owe, you’ll end up owing a penalty of 0.5% of the underpayment every month” until your balance is paid.

3. Explore IRS Payment Options

The IRS allows multiple options for paying your taxes. You may even be able to temporarily delay collection of your taxes based on your financial situation. You can also set up a short- and long-term payment plan. Each has an application fee that varies depending on your plan and financial status. However, note that interest and other penalties that will continue to add up for either of these options as long as you have an outstanding balance. The IRS interest rates are subject to change quarterly.

Another option may be to file an Offer in Compromise that allows you to settle your IRS debt for an amount that’s less than the total you owe. If you’re a homeowner, you may find your home — likely your biggest asset — disqualifies you. Since you have equity in your home, the IRS sees that as means to pay your taxes.

4. Access Your Home Equity to Help with Taxes

Not paying your taxes can result in a lien on your home, making it harder — if not impossible—to access your home equity. But you can access your home equity to settle your debt before a lien is placed on your home.

Paying off your taxes with a home equity loan, especially if you owe more than you can pay off in a single credit card payment, allows you to avoid taking on bad debt. Unlike credit cards that average more than 16% interest, a home equity loan only averages 5.82%. When you file, you’ll know the lump sum you owe, which may make a home equity loan more appealing than a home equity line of credit (HELOC). With either, you’ll want to make sure you can afford payments, as you risk foreclosure if you can’t make your payments.

Note that following the 2017 Tax Cuts and Jobs Act, the interest you pay on a home equity loan or HELOC is no longer tax deductible if you use it for paying off taxes. Interest on these loans, as U.S. News & World Report explains, only qualifies for a tax deduction if you use the loans to make home improvements.

Read HELOCs & Home Equity Loans: What’s the Difference and Is Either Right for You? for more on how these two differ >>

Another option is accessing your home equity via a home equity investment. Unlike a loan, a home equity investment gives you cash now in exchange for a share of the future value of your home.

Since it’s an investment, rather than a loan, there are no monthly payments and there is no interest. Instead, you settle the investment when you sell your home or buy out the investment. Plus, with home equity investments from companies like Hometap, your debt-to-income ratio isn’t a qualification factor as it is with home equity loans.

You should always do the research and the math to find out which payment method works best for your financial situation. You may find accessing your equity is a more affordable way to pay off your taxes than the IRS payment plan—or vice versa.

See if you pre-qualify for a Hometap Investment in less than 30 seconds.

YOU SHOULD KNOW…

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.

Out-of-the-blue medical expenses can impact anyone at any time. However, the older we get, the higher our odds we’ll face costly medical expenses that can deplete savings and throw off retirement plans.

As noted in a 2019 Hometap study on Homeowner Stress, many Baby Boomers underestimate the cost of healthcare or don’t factor it in their retirement expenses at all. It’s a risky gamble when healthcare averages out at $55,000 a year for 65–74-year-olds, many of whom are living on a fixed income after retirement. Plus, Medicare does not cover most long-term care needs.

Even if you have healthcare, the costs can add up. A visit to the ER can cost hundreds of dollars, if not more (if it’s not life-threatening, consider an urgent care center first to mitigate costs). Ongoing cancer treatments can cost thousands. Even having a baby can cost $5,000 to $11,000—significantly more if you require a Cesarean birth or there are other complications—and these costs fluctuate depending on the state.

Hit with a higher-than-average expense, homeowners face tough decisions when medical bills start showing up; many are forced to consider selling items in their homes or even selling their homes and still facing the possibility of debt.

But there is good news: you have additional options you’ll want to explore before taking these extreme measures. You may find that combining several options allow you to tackle your medical expense without spiraling into debt.

1. Dispute Incorrect Medical Charges

When you get your bill, you’ll want to first check for errors. Common billing mistakes include duplicate billing and billing for the wrong procedures. If you find errors, you’ll want to call your healthcare provider and insurer as soon as possible. Consumer Reports recommends keeping a paper trail of any interaction and, if you speak to someone on the phone, ask for the name of who you speak with and ask for a reference number.

Pros: You can avoid paying for services you didn’t receive.

Cons: The process is time-consuming. You’ll want to maintain constant communication with your provider and insurer to ensure you don’t begin receiving collection notices while charges are disputed.

2. Negotiate Your Medical Bills

Beyond potential errors, you’ll want to see if your insurer can negotiate for lower rates. You can also directly talk with your healthcare provider to see if any charges are negotiable. Do some research on the procedure(s) you received to see if there’s an average rate. This may help back up your argument.

Pros: Your provider may offer a discount for paying your bill within a certain period.

Cons: The worst-case scenario? Your provider says the bill is non-negotiable and they don’t offer any discounts for paying within a certain period.

3. Discuss Payment Plans with the Hospital

When you’re faced with a large medical bill you can’t pay at once, you’ll want to talk to your provider as soon as possible. Many will work with you to set up a payment plan that allows you to pay a portion of your bill each month.

Pros: They may have interest-free options, but you’ll want to confirm this, as well as any other fees they may add.

Cons: The provider may require you to make higher payments than you can afford. You can try and talk them down.

4. Explore Medical Credit Cards

Before you put major charges on your existing credit cards, look to medical credit cards and whether or not your provider accepts them. You’ll want to fully understand the terms of the card to see if it makes sense for you.

Pros: Depending on the bills you have to pay, you may find you can pay off your medical debt during an initial interest-free period, if the card offers it.

Cons: You may find the interest rates are still extremely high—and end up saddling you with more debt.

5. Opt for a Home Equity Investment

Unlike home equity loans, a home equity investment allows you to access a portion of your home equity in exchange for a share of the future value of your home.

Pros: Since it’s an investment, not a loan, there are no monthly payments or interest. You get the cash you need without taking on additional debt.

Cons: If you want to stay in your home indefinitely, you’ll need to settle the investment once the term is up (typically 10 years).

Compare Your Options for Accessing Equity

6. Consider a Reverse Mortgage

If you’re age 62 or older, you have the option of taking out a reverse mortgage if you plan to spend the majority of time in your home (versus a nursing home, for example).

Pros: You get immediate cash and don’t make monthly mortgage payments.

Cons: If you planned to leave your home as an inheritance, you may not be able to do so. While you don’t make monthly mortgage payments, you do pay property taxes and homeowners insurance. Whomever you are leaving your home to will need to secure funding to pay off the principal, as well as the interest and fees that accumulate each month. You’ll also want to think twice if you have someone else living with you. You cannot list anyone under age 62 as a borrower, so if you have a child, grandchild, friend, or other relative living in your home, they’ll have to pay the loan if you pass.

Because your home needs to be your primary residence, you need to consider your health. Are you paying off one major expense or do you anticipate ongoing medical issues that may require you to live at an assisted living facility or nursing home for more than one year? If the latter, your lender will consider this a permanent move and it may result in foreclosure.

What is a Reverse Mortgage?

7. Downsize Your Home

Moving from a larger home to a smaller, less expensive home can give you the cash you need to cover your medical expenses.

Pros: In addition to gaining needed cash, you may also find downsizing your home allows you to purchase a home better equipped for aging in place, such as single-floor living, guard rails, or handicap accommodations.

Cons: If you’re battling an ongoing medical condition, you may not want to add to your stress with a move. Depending on how long it takes to sell your home, you may need to continue to make payments on your medical bills while you wait for your cash.

8. Apply for a Home Equity Loan

As a homeowner, you don’t necessarily have to sell your biggest asset to get cash. If you have equity built up in your home, you may qualify for a home loan or home equity line of credit (HELOC).

Generally, a home equity loan makes more sense if you need one lump sum of money. If you had an unexpected medical expense and don’t anticipate additional charges, this may be the more attractive option. With a HELOC, you get access to cash for a set period, called the draw period. This period can last up to 10 years during which your home acts much like a credit card with you using your home equity as a source of funds. A HELOC may make sense if you know you have ongoing medical expenses, but aren’t sure of the costs.

Pros: Accessing your equity allows you to gain cash without selling your home.

Cons: With either option, your home is collateral, meaning if you can’t keep up with payments, your home and go into foreclosure. You’ll want to see if the loan will cover the cost of your medical expense and that you’ll be able to make the required monthly loan payments in addition to any remaining medical payments.

If your credit score is already negatively impacted by your medical expense, you may have a hard time qualifying for either option.

HELOCs and Home Equity Loans: What’s the Difference and is Either Right for You?

No matter how you choose to pay your bill, the key is to try to pay some portion of it. This will help you reduce the amount of interest you owe and prevent you from getting hounded by collection agencies. With each of the above options, do the math to determine which method(s) make the most sense for your finances and for your lifestyle.

Take our 5-minute quiz to see if a home equity investment is a good fit for you.

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