Persistent inflation colliding with the 2024 tax season is creating a perfect storm for taxpayers' wallets. As part of Yahoo Finance's Tax Time: From Rates to Refunds special coverage, Yahoo Finance Personal Finance Editor Molly Moorhead sits down with Brad Smith to detail the options Americans have at their disposal if they can't afford to pay their taxes all at once, as well as the penalties associated with failing to pay or file in certain timeframes.

Catch more of Yahoo Finance's Tax Time: From Rates to Refunds here, or watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: The deadline for this year's tax season is about three weeks away. And with inflation still on the sticky side, some may be struggling to pay. So what is your next best option here? Let's bring in "Yahoo Finance's" Moorhead joining me here on set to break it down for us.

So what is the next best option, if you can't pay on the deadline day?

MOLLY MOORHEAD: Well, the most important thing to do is go ahead and file. If you owe taxes, you can't pay your bill. You know, you can't pay, still file your return.

You're going to have a penalty for failure to file and one for failure to pay. But failure to file is worse. It's 5% per month of the unpaid taxes that you owe. So if you have a $500 tax bill, you're tacking on $25 a month every time, if you haven't filed your return.

So go ahead and file. And then we can talk about how the IRS will help you get that bill paid.

BRAD SMITH: Certainly. So let's talk about those penalties just a little bit more. Molly, what penalties people can face potentially, if they don't pay their taxes on time, and how they can go about remediating that as well?

MOLLY MOORHEAD: So the failure to pay penalty is just 0.5% per month of what you owe. It's a small amount. You don't want to be accruing more on this unpaid bill. But if you can't pay, then you have options. You can do a short-term payment agreement that gives you about six months to pay off that bill.

And then you have a long-term thing called an installment agreement, where you can work it out directly with the IRS. And you have up to six years. So these are the payment plans like you would think of that the IRS offers.

In more extreme cases, if there's like some doubt about the taxes that you owe, or if you're in really bad straits and you-- pardon me-- and you are never going to be able to pay this, the IRS will enter a special plan with you. But those are for the rare cases.

If you really just want the IRS off your back, you can pay your taxes with your credit card, take out a personal loan. And then you're in good with the government. But you just deal with your lender to pay off what you owe.

BRAD SMITH: Certainly. And so how does the IRS help taxpayers who may have fallen on a hard time and have other financial issues, then?

MOLLY MOORHEAD: Well, they're not going to leave you alone. So, again, file your return. File it on time. But they're going to give you all these different ways to make good and not end up with a tax lien or some scary thing like that.

BRAD SMITH: "Yahoo Finance's" owned Molly Moorhead live in living color in studio with us. Thanks so much, Molly.

MOLLY MOORHEAD: Thank you.

BRAD SMITH: Appreciate it.