File your tax return as soon as possible, even if you’re unable to pay the full amount upfront. Doing so helps you avoid the significantly higher failure-to-file penalty. If you can’t pay your tax bill in full, the IRS offers various payment options, such as short-term payment plans, long-term installment agreements, and other forms of tax relief for those facing financial hardship.
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File your return.The penalty for not filing is up to 10 times higher than the penalty for not paying. Filing your return quickly will stop the most significant penalties from accumulating. Pay as much as you can when you file, as this will minimize the amount of interest and penalties that build up.
Do not panic or ignore the issue.The IRS provides options to help people pay their taxes, but ignoring the problem will only lead to more severe collection actions.
IRS payment options
Short-term payment plan
If you can pay your full tax liability within 180 days, you may qualify for a short-term payment plan.
Cost:There is no fee to set up this type of plan, but interest and penalties will still apply to the unpaid balance.
Long-term payment plan (Installment Agreement)
If you need more than 180 days to pay, you can apply for an installment agreement to make monthly payments for up to 72 months.
Eligibility:Individuals who owe a combined total of $50,000 or less in tax, penalties, and interest can apply online.
Cost:A setup fee applies, but it may be reduced or waived for low-income taxpayers.
Offer in Compromise (OIC)
This program allows certain taxpayers to resolve their tax liability with the IRS for less than the full amount owed.
Eligibility:An OIC is an option if you have significant financial hardship and can prove you cannot pay your tax debt in full. The IRS will consider your ability to pay, income, expenses, and asset equity when deciding.
How to apply:Use the Offer in Compromise Pre-Qualifier tool on the IRS website to see if you are eligible before applying.
Temporarily delaying collection (Currently Not Collectible status)
If the IRS determines you cannot pay any of your tax debt due to financial hardship, it may temporarily delay collection until your financial condition improves.
Important note:Interest and penalties will continue to accrue during this time.
How to apply for a payment plan
The fastest and easiest way to apply for a payment plan is through the IRS Online Payment Agreement application on IRS.gov.
If you are approved, you will receive an immediate confirmation.
Penalties to be aware of
Failure-to-pay penalty:This penalty is typically 0.5% of the unpaid tax for each month or part of a month your taxes remain unpaid, with a maximum penalty of 25%.
Interest:The IRS charges interest, compounded daily, on any unpaid tax. Interest rates can change quarterly and vary based on the type of tax.
Combined penalties:If both the failure-to-file and failure-to-pay penalties apply in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty. However, a tax extension only gives you more time to file, not to pay.
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