If you owe taxes and cannot pay in full, file your return on time anyway, pay as much as you can by the deadline, and then ask the IRS about a payment arrangement. Filing on time avoids the larger late-filing penalty, and paying something reduces the interest and penalties that grow on the unpaid balance. The IRS offers payment plans and, in hardship cases, other options, so a balance you cannot cover today does not have to become a crisis. This article covers US federal taxes. States run their own collection processes.
The worst moves are ignoring the bill or skipping the return. Both make the problem more expensive and can lead to enforced collection.
File on time even if you cannot pay
The IRS charges two separate penalties, and they work very differently.
- Failure to file is charged for each month or part of a month a required return is late, up to a cap. It is much larger per month than the failure-to-pay penalty.
- Failure to pay is charged on the unpaid tax for each month or part of a month it remains unpaid, also up to a cap. The IRS says it is reduced while you have an approved payment plan and filed your return on time.
When both apply in the same month, the failure-to-file amount is reduced by the failure-to-pay amount. The practical point is simple: filing late costs far more than paying late. The exact monthly rates and caps are on the IRS penalties pages and in the Form 1040 instructions, so check them for the year you owe.
An extension of time to file gives you more time to submit the return, not more time to pay. The tax is still due on the original deadline, and interest and the failure-to-pay penalty continue on the unpaid amount.
Pay what you can right away
Any amount you pay now reduces the balance that interest and penalties are calculated on. Interest is charged on unpaid tax and on penalties until the balance is paid in full, and the rate is tied to a federal short-term rate that is reset regularly, so check the current rate on the IRS site.
You can pay through IRS online tools, by direct debit, by check or money order, or by card. Card payments go through a processor that charges a fee, and if you carry the card balance at a high interest rate, the cost can exceed what the IRS itself would charge.
Main payment options
| Option | Typical use | Key details |
|---|---|---|
| Short-term payment plan | You can pay in full within 180 days | The IRS lists no setup fee for this plan, but interest and penalties continue |
| Long-term payment plan (installment agreement) | You need monthly payments over a longer period | Setup fees can apply and depend on how you apply, and interest and penalties continue |
| Offer in compromise | You cannot pay the full amount now or in the foreseeable future | Settles for less than owed, with strict eligibility |
| Currently not collectible status | Paying would leave you unable to cover basic living costs | Collection is delayed, but interest and penalties continue |
Short-term plans
If you can pay within 180 days, you can generally request more time through the IRS online payment agreement tool or by phone. The IRS page shows no setup fee for this route, though interest and penalties continue.
Installment agreements
If you need longer, you can ask for monthly payments. The IRS lists setup fees that vary by how you apply and how you pay, with lower costs for online applications and direct debit and relief for some low-income applicants, so look up the current fee schedule. Keep in mind:
- You must have filed all required returns, and you must keep filing and paying on time. Missing a later payment or return can put the agreement in default.
- Penalties and interest continue until the balance is zero, although the failure-to-pay rate is reduced while a plan is in effect.
- Future refunds are generally applied to the balance.
- The IRS is generally limited from levying while the agreement is in effect, but a notice of federal tax lien can still be filed for larger balances.
Offer in compromise
An offer in compromise lets some taxpayers settle for less than the full balance. It is for people who cannot pay and are unlikely to ever pay in full, judged on income, expenses and asset equity. It involves paperwork, a fee and an initial payment unless you qualify for a waiver, and many offers are rejected. The IRS offers a free pre-qualifier tool. Be cautious about companies that advertise guaranteed settlements for large fees, because you can ask the IRS directly for the same programs.
Currently not collectible status
If paying would leave you unable to meet basic living expenses, the IRS may temporarily delay collection. Interest and penalties continue, and the IRS may still apply future refunds to the debt. The IRS generally has a limited period to collect, with exceptions that can pause or extend it, so do not treat expiry as a plan.
What happens if you do nothing
The IRS usually starts with a series of notices demanding payment. If you do not respond, it can:
- File a federal tax lien, a public claim against your property that can affect credit and your ability to sell or borrow.
- Levy bank accounts, wages or other assets after required notices.
- Keep future refunds and apply them to the debt.
These steps typically follow multiple notices and deadlines, so acting early leaves more choices. If you have already received a letter, read what to do if you get an IRS notice first and respond by the date on it.
Other ways to raise the money
An IRS payment plan is often cheaper than expensive borrowing, but compare costs honestly:
- Savings: weigh using part of an emergency fund against the interest and penalties you would otherwise pay, and keep enough for emergencies.
- Personal loan: compare the loan’s annual percentage rate with the IRS interest plus the failure-to-pay penalty.
- Credit card: usually the costliest route unless you have a promotional rate and a firm payoff plan.
- Retirement account withdrawals: often a poor idea because of income tax and possible early-withdrawal penalties, and the withdrawal can raise your tax bracket.
- Extra work or selling assets: practical for some people, not others.
Prevent a repeat
A balance due usually means too little was paid in during the year.
- Employees: update your Form W-4 to withhold more. See when to change your W-4 after an income change.
- Self-employed or side income: make estimated payments. The mechanics are in how quarterly estimated taxes work.
- Everyone with untaxed income: move a share of each payment into a separate tax savings account.
Mistakes to avoid
- Ignoring letters. Notices have deadlines that can limit your options.
- Paying with high-interest debt without comparing costs.
- Defaulting on an installment agreement by missing a payment or a later return.
- Hiring a company that promises to settle your tax debt for pennies. Eligibility rules are strict, fees can be high, and the IRS publishes its own free information.
- Forgetting state taxes, which have their own balances, notices and payment plans.
Getting free or professional help
For large balances, hardship, or a dispute, consider an enrolled agent, a certified public accountant or a tax attorney. The IRS also points taxpayers to the Taxpayer Advocate Service, an independent organization within the IRS, and to Low Income Taxpayer Clinics, which may help eligible people for free or at low cost.
Where this comes from
This article draws on the IRS pages on payment plans and installment agreements, on the failure-to-pay penalty, and on how to respond to an IRS notice. Penalty rates, fees, interest rates and eligibility limits change, so check the current figure at irs.gov (IRS) or in the form instructions, and ask a tax professional about your own situation.