What to Do If You Can't Pay Your Taxes This Year

Tax day is looming, and you know you can't pay what you owe. You're not alone—millions of Americans face this each year. The worst thing you can do is ignore it. The IRS has programs to help, but only if you act. This guide walks through your options, from payment plans to penalty relief, so you can make a smart decision and reduce stress.

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1. File on Time Even If You Can't Pay

The single most important step is to file your tax return by the deadline, even if you can't pay. Filing late triggers a failure-to-file penalty of roughly 5% per month on the unpaid tax, which is ten times higher than the failure-to-pay penalty. If you file for an extension, you still need to pay by the original deadline to avoid interest and penalties.

• File Form 4868 for an automatic 6-month extension to file, but remember: extension to file is not an extension to pay.
• Pay as much as you can by the deadline to reduce interest and penalties.
• If you can't pay at all, file anyway. The penalty for filing late is much steeper.

2. Apply for an IRS Payment Plan (Installment Agreement)

The IRS offers several payment plans to spread out your tax debt over time. You can apply online, by phone, or by mail. There are setup fees, but fee waivers are available for low-income taxpayers.

• Short-term plan: If you can pay within 120 days, no setup fee and no need to submit financial details. Interest and penalties still accrue.
• Long-term plan (monthly payments): For debts under $50,000, you can set up direct debit payments. Fees range from $31 to $225, but may be waived if your income is below a certain threshold.
• You can apply at IRS.gov/paymentplan or call the number on your tax notice.

3. Request Penalty Relief (First-Time Abate)

If you have a clean compliance history for the past three years, you may qualify for penalty relief under the IRS First-Time Penalty Abatement policy. This can remove failure-to-pay or failure-to-file penalties, though interest still applies.

• Call the IRS or write a letter requesting abatement. You must be current on all filings and payments.
• This only works for penalties, not the underlying tax or interest.
• If you don't qualify, you can still request relief due to reasonable cause (e.g., illness, disaster).

4. Offer in Compromise (Settle for Less)

If your tax debt exceeds your ability to pay, you may be able to settle for less through an Offer in Compromise. This is a rigorous process requiring detailed financial disclosure. The IRS considers your income, expenses, asset equity, and future earning potential.

• Use the pre-qualifier tool on IRS.gov to see if you're eligible.
• There is a $205 application fee (refundable in some cases) and a nonrefundable payment unless you choose a lump-sum option.
• Most offers are rejected, so consider hiring a tax professional if you pursue this.

5. Consider Currently Not Collectible (Hardship) Status

If you have no disposable income and few assets, you can request that the IRS place your account in Currently Not Collectible (CNC) status. This temporarily stops collection actions like wage garnishment or bank levies.

• You must provide financial information (Form 433-F or 433-A) to prove hardship.
• Interest and penalties continue to accrue, but the IRS will not actively collect.
• Your debt remains until the statute of limitations expires (generally 10 years from assessment).

6. Avoid These Common Mistakes

When you're stressed, it's easy to make things worse. Avoid these pitfalls:

• Don't use a credit card to pay taxes unless you can pay it off immediately. Interest rates on cards are often higher than IRS rates.
• Don't borrow from a retirement account without understanding the tax consequences. Early withdrawals may trigger penalties and income tax.
• Don't ignore IRS notices. They escalate quickly. Respond within the time frame given.
• Don't lie on financial statements. The IRS verifies assets and income. Fraud can lead to criminal charges.

7. When to Get Professional Help

If your situation is complex—self-employment tax, business debt, or you owe more than $25,000—consider hiring a tax professional. A CPA, enrolled agent, or tax attorney can negotiate with the IRS on your behalf and help you avoid costly errors.

• Check credentials: Enrolled Agents are licensed by the IRS specifically for tax representation.
• Beware of scams promising to settle for “pennies on the dollar” without reviewing your finances.
• You can also contact the Taxpayer Advocate Service, an independent IRS office that helps with unresolved tax problems.

Frequently asked questions