Options and Advice for Taxpayers Who Owe Money but Can't Pay Immediately
Owing taxes can feel overwhelming, but not paying is not the answer. The IRS offers several options to help taxpayers manage their tax debt. If you can’t pay your tax bill in full, here’s what you should do.
1. File Your Tax Return on Time
Even if you can’t pay, always file your tax return by the deadline (April 15 for most taxpayers). Failing to file on time can lead to:
Failure-to-file penalty – 5% of the unpaid tax per month, up to 25%.
Failure-to-pay penalty – 0.5% of the unpaid tax per month.
Accruing interest – Interest compounds daily on the unpaid balance.
📌 Tip: If you need extra time to file, request a free extension using Form 4868.
2. Pay What You Can
Even if you can’t pay the full amount, pay as much as possible to reduce penalties and interest. The IRS applies payments to your balance, lowering the total amount that accrues interest.
3. Consider These IRS Payment Options
A. Short-Term Payment Plan (120 Days or Less)
If you can pay your tax debt within 120 days, you can set up a short-term plan online without additional fees.
📌 How to Apply:
Visit the IRS Online Payment Agreement tool.
No setup fee, but interest and penalties apply.
B. Long-Term Installment Agreement
If you need more time, the IRS allows you to spread payments over months or years.
📌 Eligibility:
Owe $50,000 or less in taxes, penalties, and interest.
Have filed all required tax returns.
📌 Setup Fees:
$31 (if you apply online and pay via direct debit).
$130 (if applying by phone, mail, or in person).
📌 Apply Online: IRS Payment Plan.
C. Offer in Compromise (OIC) – Settle for Less
If you can’t afford to pay your full tax debt, you may qualify for an Offer in Compromise (OIC), which allows you to settle for less than you owe.
📌 Eligibility Factors:
Income and expenses.
Asset equity.
Ability to pay.
📌 How to Apply:
Use the IRS Offer in Compromise Pre-Qualifier to see if you qualify.
File Form 656 with a non-refundable $205 application fee.
D. Temporarily Delay Collection
If you’re facing financial hardship, the IRS may temporarily delay collection efforts until your situation improves.
📌 How to Request:
Call the IRS at 1-800-829-1040 or work with a tax professional.
Interest still accrues, but collections may be paused.
4. Avoid Future Tax Debt
📌 Adjust Your Withholding – If you owed taxes this year, increase tax withholding at work using Form W-4.
📌 Make Estimated Payments – If self-employed, pay quarterly estimated taxes to avoid a big bill.
📌 Use Tax Credits & Deductions – Review eligible tax breaks to lower your taxable income.
5. Beware of Tax Scams
The IRS never calls demanding immediate payment.
Don’t share personal information with unknown contacts.
Verify IRS notices at IRS.gov.
6. Get Help If You Need It
Consult a Certified Public Accountant (CPA) or a tax professional.
Use IRS Free File for guidance: IRS Free File.
Call the Taxpayer Advocate Service for hardship assistance.
Final Thoughts
If you can’t pay your tax bill, don’t ignore it! The sooner you act, the better your options will be. Explore IRS payment plans, consider an Offer in Compromise, and adjust your finances to prevent future tax debt.