Owing money to the IRS is a common situation, but taxpayers have official options for managing a tax bill they cannot afford—and face serious consequences if they take no action.
Why Not Paying on Time Matters
If taxes are not paid by the deadline, interest and penalties begin to accrue immediately. The failure-to-pay penalty increases each month and interest compounds on both the unpaid tax and the penalty until the balance is resolved. Failing to act may lead the IRS to file a federal tax lien on your property or pursue levies on your bank accounts and wages.
IRS Payment Plans
One common way to manage an unaffordable tax bill is through an installment agreement—a payment plan with the IRS. Short-term plans are available for balances paid within 120 days, while long-term plans allow payments over a longer period if the amount owed is below certain thresholds. These plans can be applied for online and allow monthly payments instead of a lump sum, though a setup fee may apply.
Offer in Compromise
An Offer in Compromise (OIC) allows qualified taxpayers to settle their tax debt for less than the full amount owed. This option is designed for situations where full payment would cause financial hardship, and the IRS determines the reduced amount is the most it can reasonably collect. OIC applications require detailed financial disclosure, including income, expenses, and assets.
Other Relief Options
If experiencing serious financial hardship, the IRS may classify an account as Currently Not Collectible (CNC), temporarily pausing enforcement actions while finances are stabilized. This does not eliminate the debt, and interest may continue to accrue. Taxpayers may similarly qualify for penalty relief if they have a valid reason for nonpayment.
The most important step is to file your tax return on time, even if you cannot pay the full amount. Filing prevents additional penalties and protects eligibility for payment plans and relief programs. Next, pay as much as possible by the due date and contact the IRS to discuss options.
When Enforcement Can Escalate
If no action is taken and the balance remains unpaid, the IRS may eventually send a Final Notice of Intent to Levy, after which it can take direct action—including garnishing wages, levying bank accounts, or placing a lien on property—to recover unpaid taxes.
Frequently Asked Questions
What happens if I can’t pay my taxes?
The IRS has several formal procedures to help taxpayers who cannot pay their tax bill in full by the due date. Ignoring the debt, failing to file, or waiting too long to act can result in mounting penalties, interest, and eventually, collection actions.
What is an Offer in Compromise?
An Offer in Compromise (OIC) lets qualified taxpayers settle their tax debt for less than the total amount owed, designed for situations where paying the full balance would cause financial hardship.
What is “Currently Not Collectible” status?
If you are experiencing serious financial hardship, the IRS may classify your account as Currently Not Collectible (CNC), temporarily pausing enforcement actions while you stabilize your finances. This does not eliminate the debt, and interest may continue to accrue.
Considering your own financial situation, what steps would you take if you found yourself unable to pay your tax bill in full?
