If you owe the IRS money you do not have, don’t panic! You have options, and the worst thing you can do is to do nothing.
The worst thing you can do is to do nothing
If you cannot pay your taxes, ignoring the problem will only make the problem worse. If you don’t pay your taxes you might end up owing:
- The taxes due.
- Interest on the taxes you owe.
- A penalty, or fine, for not paying on time.
The penalty for not paying on time is usually .5% of what you owe each month. For example: if you owe $5,000 in taxes, you will owe a $25 late-payment penalty each month, and you will owe interest.
If you keep ignoring your tax bill, the IRS might try to get the money that you owe. The IRS might:
- Take money from your bank accounts.
- Garnish your wages, meaning they can ask your employer to send them part of your pay.
- Place a federal tax lien against your property. A tax lien means that if you own a home the government can claim some ownership of that home in place of the tax money you own.
The IRS can also charge you more penalties if you don’t file your tax return on time. The penalty for not filing your income taxes on time is 5% of what you owe for each month that you are late. So on a $5,000 tax bill, you will owe a $250 monthly penalty until you file your tax return.
For more information on penalties and interest charges, see Topic 653 – IRS Notices and Bills, Penalties and Interest Charges.
The first thing you should try: get the money
Whether you owe $100 or $10,000, the first thing you should do is try to find the money. Think about all the places you might be able to get the money that you owe:
- Borrowing against your home
- Taking money out of your savings
- Selling things you own that are valuable
- Asking family and friends to help you
Paying now will save you money on interest and penalties.
Can you pay some of the bill, a little at a time? Consider an installment plan
The government would rather have some money than none at all. So the IRS has an installment plan available when you cannot pay in full. If you can afford at least $25 per month, the IRS will probably agree to an installment plan. Keep in mind that you will still pay penalties and interest on the amount of taxes that you have not paid. So you will end up paying more money in the long run.
The IRS charges a fee of $120.00 to set up your installment plan. The fee is cut to $52.00 if you agree to have payments taken directly from your bank account. If your income is below a certain level you can apply for an even lower fee of $43.00. To request this fee use Form 13844, Application For Reduced User Fee For Installment Agreements.
To request an installment plan, there are a few options:
- If you owe $50,000 or less, you can apply for an IRS installment plan agreement using the Web-based Online Payment Agreement (“OPA”) application on IRS.gov. The OPA option gives you a simple and easy way to establish an installment agreement over the internet.
- You can also ask for an installment agreement by filling a Form 9465, Installment Agreement Request.
- You can simply make a request in writing.
- You can call the IRS at 1-800-829-1040 to make your request.
For more complete information, see Tax Topic 202, Tax Payment Options on IRS.gov.
If an installment plan will not work, another option is an Offer in Compromise
An Offer in Compromise (“OIC”) is an agreement between you and the IRS. In an OIC, the IRS agrees to accept less money from you than you owe. The IRS will only accept an OIC when they believe they will never get the entire amount you owe, and the amount you offer is the most the IRS can expect to get from you. These offers may or may not be approved.
To file an Offer in Compromise, you must submit:
- Form 656, Offer in Compromise,
- A complete collection information statement (Form 433-A), and
- An application fee of $186.
If you request an Offer in Compromise, you can offer to make either a single payment or agree to an installment plan of smaller payments over a short period of time. For more information, see What is an "Offer in Compromise?".
If you just cannot pay, you may be put into a "currently not collectible" category
If you cannot afford to pay using an installment plan and the IRS denies your Offer in Compromise, you can ask the IRS to put you in a Currently Not Collectible category (CNC). In this category, you still owe the taxes to the IRS, but they will not try to collect the amount due. This means that the IRS will not freeze your bank account or take away your car.
To be put into a CNC status, you will need to send a Collection Information Statement (Form 433-A). This form lists all of your assets, income, expenses, and money you owe. It is used to prove to the IRS that you are not able to pay your taxes.
If you need help filling out Form 433-A, see Publication 1854, How to prepare a Collection Information Statement (Form 433-A).
If the IRS puts you into a CNC status, there are some important things you should know:
- Future tax refunds might be taken to pay the taxes you owe.
- You will still be charged interest and penalties on the taxes you owe.
- The IRS will send you a reminder notice of the amount you owe every year.
- If you are ever able to pay the taxes you owe, the IRS might ask you to make payments.
Still not sure what to do?
If you are still not sure what to do, contact the IRS to discuss your payment options at 1-800-829-1040.
You may also qualify for free tax help; see Free Tax Help.