Can’t Pay Your Taxes? Assess All of Your Options

You’re on a tight budget. Gas and food prices are through the roof. Your retirement accounts are tanking. And to top it all off, you don’t have enough money to pay your tax bill. The stress can be, well, taxing. But don’t despair: you’re not alone, and there are steps you can take when you can’t pay your taxes. Consider the following possibilities.

File Your Taxes With a Partial Payment

Whatever you do, don’t delay filing your tax returns — even if you can’t pay the entire bill. If you don’t file your returns, your penalties will be higher than if you file and don’t pay in full. Sending in some kind of payment (even if it’s a fraction of what you owe), and following that up with additional payments every month will reduce penalties. It also gives you time to consider your next move, and puts you in a better light with the IRS.

Apply for an Installment Plan

The IRS has installment plans that allow you to pay off what you owe over time. The IRS’ short-term payment plan gives you up to 120 days to pay what’s due if you owe less than $100,000 in taxes, penalties, and interest. The long-term payment plan is longer than 120 days, paid in monthly payments, if you owe less than $50,000. Applying for a payment plan can be done online. Once you’ve applied, you’ll receive immediate notification if your plan has been approved — all without having to call or write to the IRS.

Request a Compromise

If you can’t pay your full tax bill, or if doing so would create a financial hardship, the IRS has what is called an Offer in Compromise. This allows you to settle your debt for what you feel you can pay. If the IRS accepts your offer, you’ll have two payment options to choose from: lump sum cash or periodic payment. Under the lump sum plan, you’re expected to pay your tax debt in five or fewer payments within five months. Under the periodic payment plan, you will pay monthly until your tax liability is paid in full in six to 24 months.

Delay the Collection Process

If you’re in dire straits and can’t pay any of your tax bill, the IRS might declare your debt as “currently not collectible.” At this point, they’ll delay collecting your debt until your financial situation improves. In seeking a delay, you’ll have to fill out a Collection Information Statement and provide proof of your financial status. This could include information about your assets and monthly income and expenses. If the IRS agrees to a delay based on your application, your tax debt doesn’t just go away; it simply means the IRS agrees that you can’t afford to pay at this time. If you do delay paying, you’ll actually end up paying more down the road because interest and penalties will be charged until you pay up in full.

Get Help From a Tax Pro

If you aren’t wealthy, don’t owe an exorbitant amount, and simply want a payment plan, then chances are good you probably don’t need help from a tax professional. If your situation is complex, you’re feeling overwhelmed, and you owe a substantial sum, then a tax pro could be worth the time and cost. Experts, however, caution that you should carefully vet who you use.

A version of this article appeared in our partner magazine The Essential Tax Guide: 2023 Edition.