Should we pay 10k tax bill all at once or set up an IRS payment plan? (and how to avoid underpayment next year?)

8 First, don't panic! This happens to a lot of couples when their income increases, especially if both spouses work. The tax withholding tables assume each job is your only income, which creates a shortfall when combined. For your first question about paying now vs. payment plan - if you have the savings and it won't leave you financially vulnerable, paying the full amount immediately is usually best. Payment plans come with setup fees (around $31-$225 depending on method) plus interest (currently federal interest rate plus 3%) and penalties may apply. However, if parting with 15% of your savings would leave you without an emergency fund, a payment plan might be worth the extra cost for peace of mind. For preventing this next year, yes, updating your W-4 forms is exactly what you need to do. Since the 2020 redesign, there's a specific section (Step 2) for multiple jobs or working spouses. You have three options: use the IRS tax withholding estimator online, use the multiple jobs worksheet on the W-4, or simply check the box in Step 2(c) which applies a higher withholding rate. The easiest but least precise is checking the box. For more accuracy, the online estimator is your best bet.

12 After my wife and I got hit with a huge tax bill last year, I found this amazing tool that saved us so much stress. It's called taxr.ai (https://taxr.ai) and it analyzes your tax documents and pay stubs to tell you EXACTLY how much you should be withholding. You just upload your recent paystubs and answer a few questions, and it shows you precisely how to fill out your W-4 to get the right withholding. We were in almost the identical situation - owed about $9,500 because we both got raises and the withholding system didn't account for our combined income properly. The tool showed us that we needed to add $410 of additional withholding per month to break even. Been using it for about 8 months now and our latest projection shows we're right on track for a tiny refund instead of another surprise bill.

19 Just wanted to update - I tried taxr.ai after asking about it here and wow, it was eye-opening! My situation with freelance income and my husband's RSUs was totally throwing off our withholding. The tool showed we would've owed over $7k at year-end based on our current withholding. It walked us through exactly how to adjust both our W-4s (turns out we needed different adjustments for each of us) and recommended quarterly estimated payments for my freelance income. The interface made it super clear with step-by-step visuals of how to fill out the forms. We've made the changes and feel so much more confident now!

10 If you're struggling to pay or need more time to figure things out, don't ignore the IRS notices! I learned this the hard way. I tried calling the IRS for weeks to set up a payment plan after receiving a large bill, but could never get through - always got the "call volume too high" message and disconnected. I found this service called Claimyr (https://claimyr.com) that actually got me through to a live IRS agent in about 20 minutes when I'd been trying unsuccessfully for days. You can see how it works here: https://youtu.be/_kiP6q8DX5c They basically hold your place in line with the IRS and call you back when they have an agent on the line. I was able to explain my situation and got set up with a 36-month payment plan with much less stress than I expected. The agent was actually helpful and walked me through all my options.

5 I have to admit I was completely wrong about Claimyr. After posting that skeptical comment, my tax situation got more urgent when I received a notice about penalties being added to my balance. Decided to try the service out of desperation. It actually worked exactly as advertised. I got a call back in about 35 minutes with an IRS agent already on the line. The agent helped me set up a payment plan and even explained how I could request a penalty abatement since this was my first time having an issue. Would have taken me days of calling to accomplish the same thing. For anyone facing a big tax bill like the original poster, don't wait! Either pay in full or get on a payment plan quickly to minimize penalties and interest. And if you need to talk to the IRS, this service genuinely saves hours of frustration.

17 I'll add another perspective - we were in a similar situation last year (owed about $13k) and we chose the payment plan route. Here's what happened: - Setup fee was $149 for the online payment plan - We did a 72-month plan with automatic payments - We're paying about $200/month plus interest - In total we'll pay about $2,400 in interest over the life of the plan Honestly, we could have paid it all at once but decided to keep our cash reserves intact. With interest rates being what they are on savings accounts and investments, mathematically it made more sense for us to pay over time and keep our money working for us. Just another option to consider!

9 One thing nobody's mentioned - you should still file your return on time even if you can't pay the full amount! The failure-to-file penalty is much worse than the failure-to-pay penalty. Also, if this is your first time owing a substantial amount, you might qualify for first-time penalty abatement. You'd still pay interest, but the IRS might waive the penalties if you've had a good compliance history in previous years.

23 Just my two cents: make sure you check if your state taxes were also affected! We fixed our federal withholding after a similar situation but completely forgot about state taxes and got hit with another bill the following year. Now we have extra withholding for both federal AND state.

15 I was in almost the exact same situation last year - dual income household, both filed as married filing jointly, and got smacked with an $8,400 bill we weren't prepared for. Here's what we learned: **Payment decision:** We ended up doing a hybrid approach. We paid about 60% immediately to reduce the principal amount that would accrue interest, then set up a 24-month payment plan for the remainder. This kept our emergency fund mostly intact while minimizing the total interest we'd pay. **For next year:** The W-4 redesign in 2020 really helps with this! We used the IRS withholding estimator (it's actually pretty user-friendly) and discovered we needed to add about $180 per paycheck in additional withholding. We split this between both our W-4s - I put an extra $90 on mine, my spouse did the same. **Pro tip:** Run the withholding calculator again mid-year, especially if either of you gets a raise, bonus, or job change. Income changes throughout the year can throw off your projections. The peace of mind from getting this fixed is totally worth the effort. We're actually on track for a small refund this year instead of another surprise bill!