Money & Debt

If you owe the Internal Revenue Service (also referred to as the IRS) money, and you can't pay, you have options. 

Don't avoid the problem

If you cannot pay your taxes, ignoring the problem will only make it worse. If you don’t pay your taxes you might end up owing:

• The taxes due,
• Interest on the taxes you owe, and
• A penalty, or fine, for not paying on time.

The penalty for not paying on time is usually 0.5% of what you owe each month and is charged in addition to 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, or
• Place a tax lien against your property.

Read more information on penalties and interest charges on the IRS website.

Try to pay the amount owed

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.

Ask to be put in the "Currently Not Collectible" category

While you figure out what your next steps will be, you can ask the IRS to put you in a "Currently Not Collectible" status (CNC). When you are on CNC status, 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 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.

If the IRS puts you into  CNC status, there are some important things you should know:

1. Future tax refunds might be taken to pay the taxes you owe. 
2. You will still be charged interest and penalties on the taxes you owe. 
3. The IRS will send you a reminder notice of the amount you owe every year.
4. If you are ever able to pay the taxes you owe, the IRS might ask you to make payments.

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 likely agree to an installment agreement. Keep in mind you will still pay penalties and interest on the amount of taxes you have not paid. So you will end up paying more money in the long run.

The IRS charges a fee to set up your installment agreement. If your income is below a certain level, you can apply for a lower fee. To request the lower fee, use Form 13844. If certain conditions are met, the lower fee may be waived or reimbursed.

To request an installment plan, there are a few options:

1. If you owe $50,000 or less, you can apply for an IRS installment 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.
2. You can also ask for an installment agreement by filing a Form 9465.
3. You can simply make a request in writing.
4. You can call the IRS at (800) 829-1040 to make your request.

For more complete information, visit the IRS website.

Consider 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. Generally, if there is any way for a taxpayer to get the money to pay the tax they owe (for example, borrowing against their house or selling their car), the IRS may deny an OIC for that reason.

To file an Offer in Compromise, you must submit:

1. Form 656,
2. Form 433-A, and
3. An application fee.

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?".

Contact a Low-Income Taxpayer Clinic

If you are a low-income taxpayer, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs represent individuals whose income is below a certain level and need to resolve tax problems with the IRS, including tax collection disputes. LITCs can represent taxpayers in Tax Court, and before the IRS.

You can find the nearest LITC by using the “Find your local clinic” search tool at the bottom of LITC page at the Taxpayer Advocate LITC website or by calling 1-800-829-3676.

Read more about LITC and find one near you.