What to Do If You Can't Pay Your Tax Bill

Uh-oh — It’s April and you can’t afford to pay your tax bill. What now? Owing money to the Internal Revenue Service can be stressful, but you’re not alone. According to a 2024 Credit Karma study, 23% of taxpayers who don't expect a refund say they will likely take on debt to pay their tax bill, and 35% are worried they won't be able to afford their tax bill.

The IRS offers programs to help taxpayers who are in this situation. The key is to be proactive, because ignoring these tax issues will only make things worse. The suggestions below explore the options available to you, ranging from manageable payment plans to reducing what you owe.

The important thing is to file your return and avoid missing the tax filing deadline. Not filing your return by April 15th can mean higher penalties and interest. As an example, the penalty for not paying what you owe when filing is 0.5% per month, while the penalty for not filing at all is 5% monthly. That’s ten times more!  So, filing on time lets you immediately reduce potential penalties even if you can’t send in a payment.

You can also file for an extension, potentially giving you another six months to finalize your taxes. Unfortunately, you’ll still have to make estimated payments or set up a payment plan (see below). The application for automatic extension is Form 4868 which you can file by mail, online with an IRS e-filing partner or through a tax professional.

Here are some options to consider if you can’t pay all your taxes in full by the filing deadlines:

1. Work out a payment plan with the IRS

The IRS offers a couple options called installment agreements, which allow taxpayers to spread out the cost over time.

Short-term payment plan

When you owe less than $100,000 in taxes, penalties & interest, and you can pay your full balance within 180 days, you can set up a short-term plan with the IRS online.

Short-term payment plans have no set up fees, but any interest and penalties you owe will continue to accrue until fully paid off.

Long-term payment plan

If you need more than 180 days to pay, you can apply for a monthly installment plan.  There are set up fees - from $22 to $178, depending on how you set it up.  Fees can also be reduced or waived if you qualify as a low-income taxpayer.

You can ask for an installment payment agreement through the IRS website by completing Form 9465 or by calling the IRS directly.  As long as you stick to your payment plan, the IRS won’t take further collection actions like wage garnishment.

Ask the IRS to pause collection action

If paying back your tax debt prevents you from maintaining basic living expenses, you can ask the IRS to pause collection actions under the Currently Not Collectible (CNC) status.  While in CNC status, the IRS temporarily stops collection actions, but interest and penalties continue to accrue.  You can request CNC status by providing detailed financial information showing your hardship (Form 433-A).  The IRS will occasionally review your situation to determine if your financial status has improved.  They might also file a Federal Tax Lien in case you default.

2. Settle your tax debt with an offer in compromise

Offer in compromise (OIC) is a way to settle your tax debt for a part of what you owe, but it’s not for everyone.  The IRS looks at your:

• Income

• Expenses

• Ability to pay

• Asset equity

If you truly can’t afford to pay your full tax bill, even with a payment plan, an OIC might be an option.  The application process involves providing detailed financial information and you aren't guaranteed to be approved.  If you qualify, however, it can significantly reduce your tax burden.

You'll have a non-refundable $205 application fee and an initial payment toward your proposed settlement amount which is either the first month's payment (for the periodic option) or 20% of the total lump sum being proposed.  You can check your eligibility on the IRS’ website by using Offer in Compromise Pre-Qualifier Tool.

While the OIC program offers significant relief, the chances of getting approved are relatively low.  The IRS typically accepts offers when the amount proposed represents the most they think they can collect within a reasonable period of time.

3. Seek to have your tax penalties reduced or waived

If you’ve had penalties on your tax bill, you might be able to get them reduced or waived through the penalty relief programs.  The IRS offers a few options:

First-Time Penalty Abatement: If you've normally filed and paid your taxes on time in the past but slipped up this year, you may qualify for one-time relief.  These abatements could be due to a failure to file, failure to pay, or failure to deposit.

Reasonable Cause Abatement: You can also request relief if circumstances beyond your control—like a natural disaster, serious illness, death or another legitimate reason causes you to not be able to file or pay.  This can be done either by contacting the IRS and explaining your situation or by submitting Form 843.  You'll need supporting documentation, like medical records or disaster reports to help your case.

4. Approach your tax debt strategically

Things to avoid:

• Ignore the problem: The IRS has extensive collection powers, including garnishing your wages, liens and bank levies.

• Rely on high-interest loans or credit cards: These can end up costing more than the IRS penalties and negatively affect your credit score.

• Fall for tax relief scams: Some tax relief companies promise to “eliminate” your tax debt but charge hefty fees without delivering results. It may be better to work directly with the IRS or consult a trusted tax professional.

Actions to Take:

• Be proactive: The sooner you act, the better. Tackling the issues head-on will give you more options and prevent more serious collection issues in the future.

• Seek professional help: Working out your tax issues can be complex, but professional guidance can be valuable. These professionals can include:

  • Enrolled Agents (EA) – Licensed tax practitioners who specialize in tax preparation and can represent taxpayers before the Internal Revenue Service.

  • Certified Public Accountants (CPA) – Licensed accounting professionals who work in both tax and non-tax services. They provide tax preparation, advice, and planning, in addition to accounting and bookkeeping services. If you need broader help with tax, auditing, financial planning, accounting, or business issues, CPAs may be the better choice.

  • Tax Attorney - For complex cases, especially if you’re facing collection action, you may need to consult with an attorney.

• Talk to the IRS's Taxpayer Advocate Service: The TAS is an independent organization inside the IRS. Advocates can help if you’re experiencing financial hardship or if your problems with the IRS aren’t being resolved through normal channels.

Thoughtful planning action will get you through

If you are worried about paying your tax bill, remember that you have options.  Whether it’s setting up a payment plan, negotiating a lower amount through an Offer in Compromise, or seeking penalty relief, the IRS is more flexible than you might think.  The important thing is to take action—procrastinating will only make things more challenging in the long run.

And if you’re looking to gain a clearer perspective of your current financial standing before consulting a tax professional, consider scheduling a 20-minute or 50-minute session with a Mentor in your Fruition account. It’s the perfect place to get started on the path to financial wellness.