Realizing you can’t pay your taxes can be especially stressful, but it’s a problem many Americans face. About 18.6 million individual taxpayers in back taxes as of 2022.
Fortunately, you have options for dealing with a tax bill you can’t pay. To minimize penalties and interest, you’ll need to take action before taxes are due.
We’ll walk you through what to do if you can’t afford your taxes, the consequences of not paying, and why so-called tax relief services are usually best avoided.
Full coverage: Taxes 2024 — Everything you need to file your taxes on time
What to do if you can’t pay your taxes
When you can’t pay your taxes, you may be tempted to ignore the problem. But pretending the problem doesn’t exist is far more expensive than dealing with it. The fees for not filing a return are much higher than the fees for not paying your tax bill in full, which we’ll discuss in greater detail later.
If you can’t pay your taxes, these are the basic steps you should take.
1. File your return by the deadline.
Even if you can’t afford to pay the IRS in full, you should still file your return by tax day, which is April 15, 2024. (If you live in Maine or Massachusetts, your tax deadline is April 17.) You also have the option of requesting a tax extension, which pushes your due date back to Oct. 15.
While filing for an extension gives you an extra six months to submit your return, it won’t buy you more time to pay your taxes. Your payment is still due on tax day; you’re required to estimate the amount you’ll owe and pay the anticipated amount. Interest and fees will start to accrue on your unpaid balance from the time taxes are due.
2. Pay what you can.
Even if you can’t afford your full tax bill, you should pay as much as you can by the deadline. Doing so will minimize the amount you’ll owe in penalties and interest.
3. Make a budget.
Next, you’ll want to budget for your tax bill. Look at your personal finances and determine how much you can afford to pay each month, along with a realistic timeframe for paying off the balance.
4. Decide how to tackle the bill.
You have several options to pay off your tax debt that we’ll explore in the next section. For many people, IRS payment plans are the best place to start, but there are several alternatives you can also consider.
5 options if you can’t pay your tax bill
You have options if you’re unable to pay your tax bill. Usually, your best option is to work directly with the IRS. But if you’re able to qualify for a low-interest or a with a temporary 0% APR, it’s worth considering these alternatives as well.
Ask for a short-term payment extension
The IRS allows a short-term extension for many taxpayers who can’t afford to pay. You must agree to pay your tax bill in full within 180 days. You can usually apply online for a short-term payment plan if you owe less than $100,000. There’s no setup fee, but fees and interest will continue to accrue until you’ve paid off your balance.
Get an installment agreement
If you can’t pay your taxes within 180 days, you may need to sign up for a long-term payment plan, also known as an IRS installment agreement. You agree to pay the IRS taxes you owe in monthly installments for up to 72 months.
A setup fee will apply, but it will generally be lower if you apply online instead of by email or phone and make monthly payments through direct debit from your bank account. As with a short-term plan, fees and interest continue to accrue while you’re making payments.
You can apply online if your balance is less than $50,000 and you’ve filed all returns. If you owe more than $25,000, you’ll be required to pay via direct debit.
Acceptance in a long-term payment plan is usually guaranteed if you owe less than $10,000 and agree to pay off your debt within three years.
If you owe between $10,000 and $50,000, the IRS will usually accept the agreement, though it’s possible you’ll need to provide more information. Your minimum payment will be the balance you owe divided by 72. So, if you had a $30,000 tax bill, you’d need to agree to payments of at least $416 per month over six years.
If your balance is over $50,000, you’ll need to submit information about your income, expenses, and assets using Form 9465-FS and Form 433-A.
The IRS generally won’t issue a federal tax lien or levy if you’re enrolled in an installment plan and making payments as agreed.
Tip: If you don’t qualify to set up an online payment agreement, you can request one by filling out .
Ask to temporarily delay collections
If you’re experiencing financial hardship, you could ask the IRS to place your account in currently not collectible status, which temporarily delays the collections process. The IRS must agree that you can’t afford to pay your living expenses and taxes in order to grant this status. You’ll often need to provide information about your finances, including your income, expenses, and assets when you make this request.
If the IRS agrees to pause collections efforts, your tax debt won’t disappear. You’ll still owe your balance, plus interest and penalties will continue to accumulate. You’re also still responsible for making upcoming tax payments on time.
To request currently not collectible status, you’ll need to call the IRS. If you’ve received a tax notice, call the phone number listed there. Otherwise, individual taxpayers should call 800-829-1040 (or TTY/TDD 800-829-4059).
Request an offer in compromise
If you don’t believe you’ll ever be able to repay the taxes you owe, you can request an offer in compromise, which allows you to settle your outstanding tax bill for less than you owe. Be aware, though, that the IRS only approves about 44% of such requests from individuals, according to the Taxpayer Advocate Service.
The IRS will only agree to an offer in compromise if it believes your offer is equal to the amount it can expect to collect from you in a reasonable period of time. Treasury regulations only allow for an offer in compromise in three circumstances:
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There’s doubt about whether the tax liability actually exists.
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The IRS doubts it can collect the full amount owed because the balance due is more than your assets and income.
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Paying the full amount due would result in economic hardship.
You can find everything you need to complete the application in .
You have two payment options with an offer in compromise:
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Lump sum: You’ll need to submit 20% of the amount you’re offering with your application and pay the remainder in five months or less.
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Periodic payments: You agree to pay the amount you’re offering in six to 24 months and must submit the initial installment payment with your application.
With both the lump sum and periodic payment options, the initial payment you submit with your application is nonrefundable. Most offers also require a $205 application fee. However, you don’t need to submit the initial payment or the application fee if you meet the IRS Low-Income Certification guidelines.
Pay with a personal loan or credit card
If you’d rather not owe the IRS, you could pay your tax bill with a personal loan or credit card. Both of these options will typically require a good credit score.
IRS payment plans have a couple of advantages, though. For starters, the interest rates (including penalties) are usually lower than what you’d get with even the best personal loans and credit cards. Though you may qualify for a , that zero-interest period is only temporary; make sure you pay off the full balance by the time the promo period ends so you don’t end up paying a higher interest rate than the IRS charges.
Also, IRS payment plans aren’t reported to the credit bureaus and won’t affect your credit score. But opening a new credit card or taking out a personal loan could cause your score to drop, especially in the short term.
Tip: For a comprehensive look at all your options, visit the IRS “” page.
Penalties for not paying taxes
You’ll owe penalties and interest if you don’t pay your taxes — but the penalties are much stiffer if you don’t file your return. Here’s how the fees break down:
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If you fail to pay on time: You’ll owe 0.5% of the unpaid tax amount each month or partial month, with late payment penalties capped at 25% of the amount due. The amount is reduced to 0.25% per month if you filed your taxes on time and are enrolled in an IRS payment plan. You’ll also owe interest on the unpaid portion of your balance. For the first quarter of 2024, the interest rate for individuals is 8%.
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If you fail to file on time: The failure to file penalty is 5% of your unpaid tax bill for each month or partial month that the return is late. If you still haven’t filed after five months, the penalty maxes out at 25%, but the failure to pay the penalty continues to accrue.
As long as you have a federal tax debt, you won’t receive a tax refund, even if you overpay in a subsequent year.
The consequences can get more severe over time, particularly if you have a large tax debt. For example, if you have a seriously delinquent tax balance, the government could place a claim on your assets through a tax lien or seize your property by issuing a tax levy. Typically, the IRS will make multiple collections attempts before it takes either of these actions. It’s also worth repeating that the IRS seldom places liens or levies on property when a taxpayer is making the payments they agreed to.
One thing you probably don’t have to worry about: Going to prison for unpaid taxes, as long as you’ve been honest with the IRS. Usually, the IRS only pursues tax evasion cases when someone provides false information or hides income when they file taxes or they’re under a tax audit.
A word about tax relief services
You may see companies advertising tax relief services that promise to erase your IRS debt for cents on the dollar. Be very wary before working with these companies.
Often, these tax settlement companies claim they can negotiate an offer in compromise on your behalf. But instead, they frequently charge high fees that dig you deeper in debt. The Federal Trade Commission (FTC) warns that some don’t even submit IRS paperwork to help you qualify for tax relief.
Avoid any company that promises you’ll qualify for tax relief. Only the IRS can determine whether you owe federal taxes. For state taxes, only your state comptroller can make that call.
Also, be sure you understand how the company gets paid and what fees it will charge. Ask whether you’ll get a refund for any fees if they can’t lower the amount you owe. The FTC suggests steering clear of any service that charges its entire fee upfront. The agency also warns against companies that charge high monthly fees. The fees pile up quickly, and some companies will even drag out the process so they can keep tacking on charges.
If you’re struggling with tax issues, the following resources can help:
The bottom line: You have options and resources if you can’t pay your taxes. But it’s essential to take action and file your tax return, even if you can’t afford to pay.
Frequently asked questions (FAQs)
Can you go to jail for not paying taxes?
It’s extremely unlikely that you’d go to jail for not paying taxes, especially if you’ve filed your tax returns and haven’t deliberately provided false information. Usually, the IRS only pursues tax evasion cases when they suspect someone has hidden income or assets.
Is an IRS payment plan a good idea?
Setting up an IRS payment plan is typically a good idea when you can’t pay your taxes in full. The interest rate and penalty combined for those enrolled in an installment agreement is 8.25% as of the first quarter of 2024, which is lower than you’d pay for most personal loans and credit cards. Usually, the IRS won’t take actions like placing a lien or levy on your property if you’re making the payments you agreed to through an installment plan.
How long will the IRS give you to pay?
Most taxpayers can request a short-term payment plan that gives you 180 days to pay or an installment agreement where you spread out your bill over up to 72 months. You’ll be charged late fees and interest while you’re enrolled in either type of payment plan.