When tax season comes around, not everyone walks away with a refund. Some individuals get news from the IRS that the balance is due. What are my options if I can’t pay my taxes in full? The IRS is more willing to work with taxpayers than most people realize.
Here are a few of your options and what each means for your wallet, stress level, and future peace of mind.
File Your Return Even If You Cannot Pay
One of the first things you want to do is file your return on time, even if you cannot pay right now. Remember that failing to file triggers a failure-to-file penalty of 5% of your unpaid taxes per month, with a limit of up to 25%.
That can add up fast. Along with that, you can also face a failure-to-pay penalty with interest that compounds daily.
Skipping your return does not make the problem go away; it makes it more expensive.
Request a Short-Term Payment Extension
If you can pay the full amount within a few months, you may qualify for a short-term payment plan. With that, the IRS offers up to 180 days to pay your balance in full. There is no setup fee, but interest and penalties continue to accrue until the balance is paid off.
Set Up a Long-Term Payment Plan
If you cannot pay your taxes in the short term, a long-term payment plan may be the best option. You can make smaller monthly payments over several years, making the debt more manageable.
There are a few types:
- Guaranteed installment agreement: If you owe $10,000 or less, have filed, and paid on time for the past five years, you may qualify.
- Streamlined installment agreement: If you owe up to $50,000, you will have up to 72 months to pay.
- Non-streamlined agreement: If you owe more than $50,000, you will need to provide full financial disclosure before the IRS approves a plan.
Additionally, there is a setup fee, and interest continues to accrue. But the advantage is that it prevents the IRS from taking enforcement actions, such as wage garnishment or bank levies.
Consider an Offer in Compromise (OIC)
An Offer in Compromise is basically the IRS’s version of a settlement. You can offer to pay less than the full amount you owe if you can prove that paying the full balance would cause significant financial hardship.
The IRS will look at your income, expenses, equity, and ability to pay before deciding whether to accept your offer. Unfortunately, most applications are rejected. But if you are approved, it can provide a real lifeline.
Ask for Currently Not Collectible (CNC) Status
If your financial situation is dire and you are unable to cover basic living expenses, you can request Currently Not Collectible status. This temporarily halts IRS collection actions, such as levies and garnishments.
You will need to provide full financial documentation to prove your hardship, and interest still accrues on your balance. This is not a forgiveness program, but it can give you breathing room while you get back on your feet.
Never Ignore the IRS
While it could be tempting to shove that notice in a drawer and hope it goes away, the IRS does not forget. Ignoring letters can lead to wage garnishments, tax liens, or property seizures. The earlier you contact them, the more options you will have.
If the situation feels too complicated, contact a tax debt resolution lawyer. They can speak to the IRS on your behalf and make sure you are choosing the right strategy.
Let Us Help with Your IRS Tax Issues
So, now that you know your options if you can’t pay your taxes in full, you can take the following steps. Whether you set up a payment plan, request hardship status, or negotiate a reduced settlement, there is always a way forward. But you want to communicate with the IRS and act before penalties snowball.
So if you can’t pay your taxes in full, don’t panic. Reach out to Easter & DeVore, Attorneys at Law. We can help you find a plan that lets you move forward without that cloud hanging over you. Schedule a consultation today.
