You Have Options for Managing IRS Debt
Owing the IRS more than you can afford is stressful, but you’re not alone. Every year, thousands of taxpayers find themselves in a similar situation. The good news? The IRS offers several payment relief options, including installment agreements, offers in compromise, and hardship programs to help you manage your debt.
This guide explains what to do if you can’t pay your tax bill, how to avoid penalties, and the best strategies to resolve your tax debt without financial ruin.
1. Don’t Ignore Your Tax Debt—Act Quickly!
🚨 Ignoring your tax bill can lead to serious consequences, including:
✔ Penalties & Interest – The IRS adds failure-to-pay penalties (0.5% per month) and interest.
✔ Wage Garnishments – The IRS can take money directly from your paycheck.
✔ Bank Levies – The IRS can freeze and seize funds from your bank account.
✔ Tax Liens – The IRS can place a legal claim on your assets, hurting your credit.
💡 Tip: The IRS is more willing to work with you if you contact them before they take enforcement actions.
2. Review Your Tax Bill and Confirm It’s Correct
📌 Before taking action, verify that your tax bill is accurate.
✅ Steps to Check Your Tax Balance:
✔ Log into your IRS account at www.irs.gov/account to review your balance.
✔ Check for errors or missing deductions that could reduce your liability.
✔ If you disagree with the tax amount, file an appeal or request a correction.
💡 Tip: A tax professional can help you determine if you qualify for deductions or credits that may lower your tax bill.
3. Pay What You Can to Reduce Penalties
📌 Even if you can’t pay the full amount, paying as much as possible now will reduce penalties and interest.
✔ The failure-to-pay penalty is 0.5% per month, but paying part of your bill reduces this charge.
✔ Interest accrues daily, so making a partial payment saves money in the long run.
💡 Tip: Use the IRS Direct Pay system or www.irs.gov/payments to make a secure payment.
4. Set Up an IRS Payment Plan (Installment Agreement)
📌 If you can’t pay in full, set up a monthly payment plan with the IRS.
✅ Types of IRS Payment Plans:
| Plan Type | Who Qualifies? | Duration | Setup Fees |
|---|---|---|---|
| Short-Term Plan | Owe less than $100,000 | Pay within 180 days | $0 |
| Long-Term Installment Agreement | Owe less than $50,000 | Pay over 72 months | $31 (online) / $107 (by mail/phone) |
| Non-Direct Debit Plan | Owe less than $50,000 | Pay over 72 months | $149 (online) / $225 (by mail/phone) |
📌 How to Apply:
✔ Online: Apply at www.irs.gov/opa.
✔ Phone: Call 1-800-829-1040.
✔ Mail: File Form 9465 (Installment Agreement Request).
💡 Tip: Choose Direct Debit to get the lowest setup fee and avoid missing payments.
5. Request an Offer in Compromise (Settle for Less)
📌 An Offer in Compromise (OIC) lets you settle your tax debt for less than what you owe if you meet strict IRS requirements.
✅ Who Qualifies for an OIC?
✔ Can’t afford to pay your full tax debt.
✔ Have limited income and assets.
✔ Paying in full would cause financial hardship.
📌 How to Apply for an OIC:
✔ Use the IRS Offer in Compromise Pre-Qualifier Tool: www.irs.gov/oic.
✔ File Form 656 (Offer in Compromise Application).
✔ Submit Form 433-A (Collection Information Statement) to prove financial hardship.
💡 Tip: The IRS only accepts about 30% of OIC applications, so work with a tax professional to increase approval chances.
6. Ask for “Currently Not Collectible” Status (If You Can’t Pay at All)
📌 If you’re experiencing extreme financial hardship, the IRS may pause collection efforts.
✔ The IRS temporarily stops collecting if you prove you can’t afford payments.
✔ You must provide financial documents (Form 433-F) showing inability to pay.
✔ Interest and penalties still accrue, but no enforcement actions (garnishments, levies) occur.
💡 Tip: This status is temporary, and the IRS will review your finances every year.
7. Avoid High-Interest Loans & Tax Scams
🚨 Be cautious of companies promising “pennies on the dollar” settlements.
✔ Avoid payday loans and tax resolution scams—many charge high fees and don’t deliver results.
✔ The IRS does not require a third party to set up a payment plan—you can apply directly.
✔ If working with a tax professional, choose a licensed CPA, tax attorney, or enrolled agent.
💡 Tip: Check the Better Business Bureau (BBB) or IRS website before hiring tax relief services.
8. What Happens If You Don’t Pay?
🚨 If you ignore your tax bill, the IRS can take serious action:
✔ Wage Garnishment – The IRS can take money directly from your paycheck.
✔ Bank Levy – The IRS can freeze and seize your bank account funds.
✔ Tax Lien – The IRS can file a legal claim against your property, affecting credit.
✔ Passport Revocation – If you owe over $62,000, the IRS can deny or revoke your passport.
📌 How to Prevent IRS Collection Actions:
✔ Set up a payment plan or request hardship status before enforcement begins.
✔ If you receive an IRS Final Notice, act quickly—garnishments and levies can start within 30 days.
💡 Tip: If the IRS has already garnished your wages, contact them to request a payment plan instead.
9. Can You Get IRS Penalties Waived?
📌 Yes! The IRS may waive penalties under certain conditions.
✅ Who Qualifies for Penalty Abatement?
✔ First-time offenders (no previous penalties in the last 3 years).
✔ Have a valid reason (natural disaster, illness, financial hardship).
✔ Filed tax returns on time in previous years.
📌 How to Request Penalty Abatement:
✔ Call the IRS at 1-800-829-1040.
✔ File Form 843 (Claim for Refund and Request for Abatement).
💡 Tip: The IRS is more likely to grant “First-Time Penalty Abatement” if you have a good history of filing on time.
Get Help Before the IRS Takes Action
📌 If you owe more than you can afford:
✔ Set up an IRS payment plan to avoid enforcement actions.
✔ Consider an Offer in Compromise to settle for less.
✔ If struggling financially, request Currently Not Collectible status.
✔ Never ignore tax debt—the IRS can seize wages, bank accounts, and property.
📌 Need expert tax relief? Contact First Union Tax for personalized tax debt solutions and IRS negotiation assistance!
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