Quick Summary:

If your merchant cash advance payments are making it difficult for you to stay on top of your business taxes, you aren’t alone. Both the IRS and MCA can take aggressive action when you fall behind on your debt, so it’s important to act early when you’re struggling to make your payments and get financial or legal advice at the first sign of trouble.

MCA payments don’t wait for tax season. They pull from your account every day, leaving little room for quarterly estimates, payroll taxes, or your annual bill. When both debts pile up at once, the pressure can feel impossible to escape. Here’s what you need to know, and what you can do about it.

Why MCA Payments Make It Hard to Pay Business Taxes

Merchant cash advances (MCAs) are structured to take priority over other expenses. Your MCA funder takes money from your bank account every day or week. That’s cash that might have otherwise gone toward your quarterly taxes, payroll taxes, or your annual tax bill.

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If you have more than one MCA (known as MCA stacking), the problem is even worse, as multiple MCA companies are pulling from your account.

Unlike traditional loans, the interest (known as a factor rate) on your MCA isn’t tax-deductible as interest. The funds going out don’t help lower your tax bill, diminishing your working capital.

Unfortunately, this situation is all too common for small business owners. It doesn’t mean you did something wrong — MCAs are designed to take priority over everything else, and often leave small businesses in a bad spot, and unable to pay their tax bills.

What Can Happen if You Don’t Pay Your Business Taxes

The IRS doesn’t care that your MCA lender is already taking money out of your account every day or every week. If you owe taxes, the IRS expects you to pay them, and the consequences of ignoring them compound quickly.

Here are just a few things that can happen if you don’t pay your business taxes on time:

  • Penalties and interest: The IRS starts charging penalties and interest as soon as your taxes are late, and they continue to accrue every month until you pay them.
  • Property liens: The IRS can place federal tax liens on your business and personal assets, which then become part of the public record.
  • Bank account levies: The IRS can take money directly from your bank account with a levy. With your MCA payments also coming out, you could quickly end up underwater.
  • Personal responsibility for payroll taxes: The Trust Fund Recovery Penalty means you could be held personally responsible for your business’s unpaid payroll taxes.

The bottom line is that unpaid taxes don’t go away. The IRS will eventually get its money, and the longer you wait, the more it costs you in the long run.

It’s also important to note that filing your tax return and paying your taxes aren’t the same thing. Many business owners make the mistake of not filing their taxes because they can’t pay. If you do this, you’ll incur an additional fee, known as a failure-to-file penalty. Even if you can’t pay your taxes just yet, it’s still important to file your tax return on time.

How MCA Debt Makes a Tax Problem Even Worse

Having MCA debt and tax debt at the same time can create a significant problem in your cash flow that’s hard to get out of.

Consider that your MCA lender is pulling cash from your account, usually daily. Because there’s little left over, you can’t save enough to pay your taxes. Once the IRS starts adding penalties and interest, your debt burden quickly grows.

Unfortunately, the problems don’t stop there. Many MCA contracts include a provision called a confession of judgment (COJ). The COJ allows the funder to get a default judgment against you without going through the traditional legal process. If the IRS also places a tax lien or account levy, your business could be in real trouble, with each levy making it impossible to pay the other debt. These two competing claims can create legal complexity.

It’s no surprise that this situation leads to business owners feeling stuck, often doing nothing at all for fear of the consequences from the other creditor.

Once you find yourself in this situation, having an experienced debt relief attorney by your side becomes essential.

How Getting Help With MCA Debt Can Free Up Cash for Taxes

In most cases, effectively managing your MCA debt is the key to being able to pay your business taxes. Working with an attorney who specializes in handling MCA debt can help reduce the financial pressure, so you have room to address your tax obligations.

Here are just a few ways an experienced merchant cash advance attorney can help:

  • Negotiate lower payments or settlements: An attorney can negotiate directly with your MCA provider to either reduce your daily payments or settle your debt for a lower lump sum than your total balance.
  • Challenge unfair contract terms: If there are any unfair or unenforceable terms in your MCA agreement, an attorney can identify and challenge them.
  • Stop or reverse account freezes: If your MCA has gotten a default judgment to freeze your bank account, an attorney can help you take legal action to restore your access.
  • Coordinate with your tax professional: If you’re working with a CPA to address your tax situation, your MCA lawyer can coordinate with them so that solving one problem doesn’t create or worsen another.

The IRS has several resolution options, including payment plans and hardship programs, to help you address your tax debt. Working with a tax professional to find and navigate those programs can free up your attorney to handle your MCA debt.

Get Help Before Tax Season Makes Your MCA Problem Worse

If you’re heading into tax season with MCA debt you can’t manage, don’t wait for that problem to trickle down to your taxes. Addressing your unpaid MCA debt is often the fastest path to freeing up the cash you need to pay your taxes.

Tayne Law Group has more than 20 years of experience helping business owners get out of under MCA debt. To see how we can help with your situation, call (866) 890-7337 or fill out our short contact form to set up a free phone consultation. We never share or sell your information, and all conversations are confidential.

Frequently Asked Questions

Can the IRS take money from my bank account if I have MCA debt too? 

Yes. The IRS has the authority to levy your bank account for unpaid taxes, no matter what other obligations you carry. If your MCA lender is also pulling from or has frozen the same bank account, you may find yourself unable to cover either obligation. Getting legal help early is the best way to avoid or resolve this situation.

Should I stop paying my MCA so I can pay my taxes? 

It’s not advisable to stop making your MCA payments without speaking with an MCA debt attorney. Stopping payments can trigger severe consequences, including COJ filings, lawsuits, or account levies. An attorney can help you coordinate your competing debts with the fewest legal and financial consequences possible.

Are MCA payments tax-deductible? 

Your MCA fees may be tax-deductible, but not in the same way interest on a traditional loan is. An accountant can help evaluate your contract to determine the types of fees you’re paying and whether you can deduct them on your business taxes.

Is it too late to get help if I’ve already missed a tax deadline? 

It’s never too late to get help with your tax or MCA debt. The IRS has programs for people who have fallen behind on their taxes. Similarly, there are strategies you can use to negotiate with MCA lenders, even if you’ve already fallen behind on your payments. However, the sooner you act, the more options you’ll have.