Owing money to the IRS can be stressful—especially when you know you can’t pay your tax bill by the deadline. The good news is you have options. The worst thing you can do is ignore the problem. By taking proactive steps, you can reduce penalties, protect your credit, and work toward resolving your tax debt. Here’s how to handle the situation if you’re unable to pay your tax bill on time.
1. File Your Tax Return on Time Anyway
Even if you can’t pay what you owe, always file your tax return by the deadline. Failing to file can trigger a separate penalty that is significantly higher than the penalty for not paying. Filing on time shows the IRS that you’re attempting to comply, which can help if you request a payment arrangement or penalty relief later on.
2. Pay What You Can Now
Every dollar you pay reduces future penalties and interest. Try to pay as much as you can by the due date, even if it’s only a portion of the total bill. This shows good faith and lowers the amount on which penalties and interest will accrue.
3. Consider an Installment Agreement
If you can’t pay the full amount now but could manage monthly payments, consider applying for a payment plan with the IRS.
- Short-Term Payment Plan: For debts under $100,000, you may qualify for a plan lasting up to 180 days with no setup fee.
- Long-Term Installment Agreement: If you need more time, a longer-term plan is available, though setup fees may apply (typically between $31 and $225, depending on how you set it up).
You can apply online through the IRS website, by phone, or by submitting Form 9465.
4. Request a Temporary Delay of Collection
If you’re experiencing financial hardship, the IRS may temporarily delay collection by marking your account as “currently not collectible.”
This doesn’t eliminate your debt, but it does postpone IRS collection efforts like wage garnishments or bank levies. You’ll still accrue interest and penalties, but it gives you breathing room to improve your financial situation.
5. Explore an Offer in Compromise
An Offer in Compromise (OIC) allows you to settle your tax debt for less than the full amount you owe.
This option is only available to taxpayers who meet strict eligibility requirements, and it typically requires proof that you truly can’t pay the full amount, even over time. Use the IRS’s Offer in Compromise Pre-Qualifier tool to see if you’re a candidate, and consider working with a tax professional if you decide to pursue this route.
6. Avoid Using High-Interest Loans or Credit Cards
While it may seem tempting to pay off your tax bill with a credit card or personal loan, these options can lead to higher long-term costs due to interest rates and fees. Compare the IRS interest and penalty rates (currently about 7%–10%) to your credit card APR to determine what makes the most sense for you financially.
7. Communicate with the IRS
Proactively reach out to the IRS if you’re struggling to pay your tax bill. The IRS is often willing to work with taxpayers who take initiative. Ignoring notices or failing to respond can escalate the situation quickly, leading to liens or garnishments.
Final Thoughts
Owing the IRS can feel overwhelming, but help is available. Remember—filing your return on time and communicating with the IRS are key first steps. From payment plans to temporary relief options, there are ways to manage your tax debt without damaging your financial future. Take action today, and consider speaking with a tax professional if you’re unsure about your next move.