The April tax deadline is fast approaching. You’ve finished your tax return and realized you owe taxes that you can’t afford to pay in full. Now what? Take a deep breath – you have options. The IRS understands financial hardship and has programs in place to help taxpayers in situations like this.
First and foremost, you need to file your tax return by the deadline, even if you can’t pay the full amount due The IRS charges a failure-to-file penalty if you don’t file on time, so it’s important to file your return to avoid this penalty. You can request an automatic tax filing extension, but this only gives you more time to file, not more time to pay
Once you file, pay as much as you can afford. Making even a partial payment can reduce penalties and interest. Here are some options to explore if you owe taxes you can’t immediately pay in full:
Request an Installment Agreement
An installment agreement allows you to pay your tax debt in smaller more manageable payments over time. You can apply for an installment agreement online if you owe $50000 or less in combined taxes, penalties, and interest. There are two main types
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Short-term payment plan – Pay off your balance in 180 days or less. Limited to balances under $100,000.
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Long-term payment plan – Pay over a period longer than 180 days, in monthly payments. Limited to balances under $50,000.
Installment agreements charge interest and may include a setup fee. As long as you make your monthly payments on time, the IRS won’t take collection actions against you.
Submit an Offer in Compromise
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. The IRS will consider accepting an offer if you can’t pay your tax liability in full or doing so would cause financial hardship. Offers require a non-refundable application fee and payment of a non-refundable initial offer amount.
To start the process, use the IRS Offer in Compromise Pre-Qualifier tool to see if you may be eligible. Then you’ll need to fill out Form 656 and submit supporting documentation about your financial situation. The IRS will determine whether to accept or reject your offer based on the facts and circumstances of your case.
Request a Temporary Delay
If you expect to be able to pay your tax debt within 120 days, you can request a temporary delay of collection. Interest and penalties will continue to accrue during the delay. To make this request, you’ll need to submit Form 1127 and explain your proposed payment plan.
Ask About Currently Not Collectible Status
If paying your tax debt would cause serious financial hardship, you may be able to have your account placed in “currently not collectible” status. This pauses IRS collection actions, including wage garnishments and bank account levies. However, penalties and interest will continue to accrue.
To request this status, you’ll need to complete Form 433-F and provide detailed information about your monthly income, assets, and expenses. The IRS will review your financial information to determine if you qualify. Currently not collectible status doesn’t make your debt go away, and the IRS can re-evaluate your situation in the future.
File for Bankruptcy
Bankruptcy is a legal proceeding that can eliminate or reduce certain tax debts. To receive this relief, you must file bankruptcy paperwork with the appropriate federal court. This is a complex process best handled by a bankruptcy attorney. Not all tax debts can be discharged in bankruptcy.
Request Penalty Relief
If you couldn’t pay your taxes on time due to circumstances outside your control, you may be able to have penalties waived. The IRS offers penalty relief in certain situations, like natural disasters, serious illnesses, or military deployments. You’ll need to submit a request and documentation supporting your situation. Interest will still apply even if penalties are waived.
Understand IRS Interest and Penalties
It’s important to know how the IRS calculates interest and penalties on unpaid tax debts. This helps you understand how your balance can grow over time.
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Failure-to-file penalty – 5% of unpaid taxes for each month your return is late, up to 25%
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Failure-to-pay penalty – 0.5% of unpaid taxes for each month they’re late, up to 25%
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Interest – Compound daily interest applied to unpaid taxes and penalties
Penalties and interest really add up, which is why it’s critical to file on time and pay as much as you can, even if you can’t pay in full. The sooner you address your tax debt, the less it will ultimately cost you.
Take Action Quickly
If you receive an IRS notice about unpaid taxes, take prompt action. Don’t ignore the notice as this can lead to additional penalties and IRS collection actions. Contact the IRS to discuss payment options or request penalty relief. Taking the right steps can help you resolve your tax debt on affordable terms.
The bottom line is don’t panic if you owe taxes you can’t immediately pay in full. The IRS provides various payment options to help taxpayers facing financial hardship. File your return on time, pay what you can, and explore arrangements to pay over time. This can help you avoid or reduce penalties and get back into good standing with the IRS.
What happens if you can’t pay your tax bill?
FAQ
What happens if I owe the IRS and can’t pay?
What happens if I can’t make my tax payment?
What is the minimum payment the IRS will accept?
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Tax debt
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Min. monthly payment
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$10,000 or less
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Sufficient amount to pay off your debt in less than 3 years
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$10,000 to $25,000
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Total debt divided by 72
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$25,000 to $50,000
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Total debt divided by 72
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More than $50,000
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No set minimum
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What do I do if I can’t afford to pay my taxes?
What if I can’t pay my taxes?
What if I can’t pay my taxes? Don’t panic – you may qualify for a self-service, online payment plan (including an installment agreement) that allows you to pay off an outstanding balance over time.
What if I can’t pay my tax bill in full?
This guide is also available in Welsh (Cymraeg). If you cannot pay your tax bill in full, you may be able to set up a payment plan to pay it in instalments. This is called a ‘Time to Pay’ arrangement. You will not be able to set up a payment plan if HMRC does not think you will keep up with the repayments.
What happens if I fail to pay my tax bill?
And on top of that, the IRS will hit you with a failure-to-pay penalty of 0.5% each month—with a maximum penalty of 25% of your tax bill—until your tax bill is paid in full. 2 That’s why it’s so important to pay as much as you can ASAP and set up a payment plan for the rest (we’ll talk about payment plan options below).
Should I make a payment if I owe a tax bill?
Making a payment, even a partial payment, will help limit penalty and interest charges. Taxpayers struggling to meet their tax obligation may consider these payment options. Taxpayers who owe but cannot pay in full by April 18 don’t have to wait for a tax bill to set up a payment plan. They can apply for a payment plan at IRS.gov/paymentplan.
What should I do if I don’t pay my taxes?
But generally, you have three options: Get on a monthly installment agreement. Request an offer in compromise. File and don’t pay, or make a partial payment. Everyone’s tax situation is different, and there is no one-size-fits-all strategy, so you should consult a tax professional for advice.
What happens if you don’t pay your taxes in full?
Pay your tax debt in full! The IRS might also send your back taxes to a private collections agency, and they’ll start bugging you to pay up too.
