Owing money to the IRS can be stressful, especially when paying the full balance at once is not realistic.
The good news is that the IRS offers several ways to deal with unpaid federal taxes. Depending on the situation, a taxpayer may be able to use a payment plan, request an Offer in Compromise, ask for a temporary collection delay or seek relief from certain penalties.
The best path depends on the amount owed, current income, necessary expenses, assets and overall ability to pay.
Explore IRS Tax Debt Options
Ways to Address IRS Tax Debt
There is no single program called “tax debt relief.”
Instead, the term is commonly used to describe several different IRS programs and procedures that can help taxpayers manage or resolve unpaid taxes.
Common options include:
- Paying the balance over time
- Settling qualifying tax debt for less than the full amount
- Requesting a temporary pause in collection
- Seeking relief from certain penalties
- Paying as much of the balance as possible
Quick Comparison
| Option | How It May Help |
| Installment Agreement | Breaks the balance into payments |
| Offer in Compromise | May reduce qualifying tax debt |
| Collection Delay | Temporarily pauses some collection activity |
| Penalty Relief | May remove certain penalties |
| Direct Payment | Lowers the amount still owed |
Start by Understanding Your Tax Balance
How much you owe can affect which IRS options are available and how much financial information you may need to provide.
Owe Less Than $5,000?
A smaller balance may be manageable through direct payments or a short repayment arrangement.
Owe $5,000 to $10,000?
Taxpayers in this range may want to compare paying the balance quickly with setting up monthly payments.
Owe $10,000 to $25,000?
At this level, a longer repayment plan may become more useful, especially when paying the full amount would disrupt normal household expenses.
Owe $25,000 to $50,000?
Many taxpayers with balances in this range may still be able to request a long-term IRS installment agreement.
Owe More Than $50,000?
Larger balances may involve additional requirements, financial disclosures or a closer review of other resolution options.
Review Ways to Manage IRS Debt
Paying the IRS Over Time
One of the most common ways to handle tax debt is through an IRS payment plan.
Instead of paying the entire balance immediately, a taxpayer agrees to make payments over a set period.
Short-Term Payment Option
A short-term payment arrangement can provide additional time to pay the balance in full.
This type of plan may work for someone who expects to have the money within several months but cannot pay everything today.
Monthly Installment Agreement
A long-term installment agreement allows the taxpayer to make monthly payments.
The amount of each payment depends on the balance, repayment period and the taxpayer’s situation.
Interest and certain penalties can continue while the balance remains unpaid.
Is a Payment Plan the Same as Debt Forgiveness?
No.
A payment plan changes how the balance is paid. It does not normally reduce the tax that is owed.
Review IRS Payment Plan Options
Can Tax Debt Be Reduced?
Sometimes.
The main IRS program used to settle qualifying tax debt for less than the full balance is called an Offer in Compromise.
An Offer in Compromise is not automatic, and it is not available simply because a taxpayer would prefer to pay less.
The IRS reviews a person’s finances to decide whether accepting a lower amount makes sense.
How an Offer in Compromise Works
When reviewing an offer, the IRS may look at factors such as:
- Household income
- Necessary monthly expenses
- Money in bank accounts
- Property
- Vehicles
- Investments
- Equity in assets
- Future earning ability
The goal is to determine how much the IRS believes can realistically be collected.
If the IRS believes the full balance can be paid through other means, it may reject the offer.
When an Offer in Compromise May Be Worth Reviewing
An Offer in Compromise may be worth learning about when:
- Paying the full balance appears unrealistic
- The taxpayer is dealing with significant financial hardship
- Necessary living expenses leave little money for repayment
- The taxpayer has limited assets
- A regular payment plan may not resolve the debt
Before applying, taxpayers generally need to be current with required tax filings and other tax obligations.
Questions to Consider
Could you pay the full tax balance today?
Would paying the IRS make it difficult to cover housing, food, utilities or other basic expenses?
Have all required tax returns been filed?
Do you have savings, property or other assets that could be used to pay the debt?
These questions can help determine which IRS options may deserve a closer look.
Explore Tax Resolution Options
Are There Costs to Apply for an Offer in Compromise?
In many cases, there are.
An Offer in Compromise may involve an application fee and an initial payment toward the proposed settlement.
Certain taxpayers who meet low-income requirements may be able to avoid some of these costs.
There are also different ways an accepted offer may be paid.
Lump-Sum Option
A taxpayer proposes a settlement amount and pays part of that amount when the application is submitted.
Periodic Payment Option
A taxpayer begins making payments toward the proposed settlement while the IRS reviews the request.
Rules can vary based on income and the type of offer submitted.
What If You Cannot Afford Monthly Payments?
Some taxpayers cannot afford even a reduced IRS payment because their income is needed for basic household expenses.
In that situation, the IRS may consider temporarily delaying collection.
This is commonly known as Currently Not Collectible status.
The IRS may ask the taxpayer to provide financial information showing:
- Monthly income
- Rent or mortgage expenses
- Utilities
- Food costs
- Transportation
- Medical costs
- Assets and bank balances
If the IRS agrees that payment would create financial hardship, some collection activity may be paused.
The Debt Still Exists
Currently Not Collectible status does not erase the tax balance.
Interest and penalties may continue, and the IRS may review the taxpayer’s finances again later.
Tax Penalty Relief
A tax bill can include more than the original tax owed.
Penalties may be added for issues such as filing late or paying late.
In some cases, taxpayers may qualify to have certain penalties reduced or removed.
Reasonable Cause
Penalty relief may be considered when circumstances prevented a taxpayer from meeting a tax obligation despite making a reasonable effort.
Examples can include serious events or circumstances that were outside the taxpayer’s control.
Administrative Penalty Relief
The IRS also has administrative procedures that may provide relief for taxpayers with a strong history of filing and paying on time.
Penalty Relief Does Not Usually Remove the Tax
Even when a penalty is removed, the original tax balance may still need to be paid.
What Happens When IRS Debt Is Not Addressed?
An unpaid tax balance can become more expensive over time.
Interest may continue to accrue, and additional penalties may be added.
Depending on the situation, IRS collection actions can include:
- Applying future tax refunds to the debt
- Filing a federal tax lien
- Levying certain property or financial accounts
- Sending additional collection notices
Large, seriously delinquent federal tax debts can also create other problems, including possible passport-related consequences.
Addressing tax debt earlier can give a taxpayer more time to review payment or resolution options.
Understanding Tax Liens and Levies
These two terms are often confused.
Federal Tax Lien
A tax lien is the government’s legal claim against a taxpayer’s property when a tax debt remains unpaid.
It can attach to assets such as real estate and other property.
Tax Levy
A levy is different.
A levy allows the IRS to actually take certain property or funds to satisfy a tax debt.
That could include money from a bank account or other assets when legal requirements are met.
Taxpayers facing a lien or levy may want to review their options quickly.
Tax Debt Is Not the Same as Credit Card Debt
Federal tax debt follows different rules than most consumer debt.
IRS Tax Debt
- Owed to the federal government
- Can involve liens and levies
- IRS payment plans may be available
- Offers in Compromise may apply
- Special federal collection rules apply
Credit Card Debt
- Owed to a bank or card issuer
- Interest rates depend on the account
- Private collection rules apply
- Settlement procedures are different
Personal Loan Debt
- Usually has fixed repayment terms
- Owed to a private lender
- Interest rates and fees vary
- Does not use the IRS collection system
Because the rules are different, taxpayers should avoid assuming that a strategy used for credit card debt will work the same way with the IRS.
Can You Handle Tax Debt Without Hiring a Company?
In many cases, yes.
Some IRS payment options can be requested directly without using a tax relief company.
A relatively straightforward payment plan may not require professional help.
More complicated cases can involve issues such as:
- Multiple years of unpaid taxes
- Unfiled tax returns
- Large tax balances
- Tax liens
- Tax levies
- Business tax problems
- Disputes about the amount owed
- Offer in Compromise applications
For these situations, some taxpayers choose to work with a qualified tax professional.
Types of Tax Professionals
Several types of professionals may be able to represent taxpayers before the IRS.
Enrolled Agents
Enrolled agents are federally authorized tax professionals who can represent taxpayers in IRS matters.
Certified Public Accountants
CPAs may provide tax preparation, planning and resolution services depending on their practice.
Tax Attorneys
Tax attorneys may be useful for complex tax disputes, legal issues and certain collection matters.
The right type of help depends on the complexity of the tax problem.
What Tax Relief Companies Do
Tax relief companies may offer services such as:
- Reviewing tax balances
- Looking at IRS notices
- Helping prepare missing tax returns
- Applying for payment plans
- Preparing Offer in Compromise applications
- Communicating with the IRS
- Assisting with lien or levy issues
The services and fees can vary widely between companies.
Hiring a company also does not guarantee that the IRS will reduce a tax debt.
Be Careful With Tax Debt Guarantees
Tax relief advertising sometimes uses phrases that make settlement sound simple.
Claims that a company can automatically erase tax debt or settle every account for a small percentage of the original balance should be treated carefully.
The IRS makes the final decision about whether a taxpayer qualifies for programs such as an Offer in Compromise.
No provider can guarantee that a particular settlement will be approved.
Questions to Ask Before Hiring Tax Help
Before paying for tax resolution services, ask questions such as:
- Who will actually handle the case?
- Can that person represent taxpayers before the IRS?
- What specific IRS option is being recommended?
- Why does that option fit my situation?
- What is included in the quoted fee?
- Are there additional fees later?
- What happens if the IRS rejects the request?
- Can I complete the same process directly with the IRS?
- Is the company promising a specific result?
Comparing several providers can also help taxpayers understand differences in services and pricing.
Review the Rest of Your Finances
Tax debt may be easier to manage when it is considered as part of the household’s overall financial picture.
Build a Basic Budget
Start by comparing monthly income with essential expenses.
This can show how much money may realistically be available for an IRS payment.
Review Credit Card Balances
High-interest credit card debt can make it harder to keep up with tax payments.
Looking at all debts together may help identify which balances are creating the most pressure.
Consider Debt Consolidation Carefully
Some consumers explore combining multiple consumer debts into one payment.
Debt consolidation does not erase debt, and the interest rate, fees and repayment period should be compared before making a decision.
Compare Personal Loans
Some taxpayers look at personal loans as a way to pay a tax balance.
Before borrowing, compare:
- Interest rate
- Monthly payment
- Loan term
- Origination fees
- Total repayment cost
A lower monthly payment can still result in a higher overall cost.
Frequently Asked Questions
Can the IRS reduce what I owe?
Potentially.
An Offer in Compromise can allow qualifying taxpayers to settle certain tax debts for less than the full balance.
Approval is based on the taxpayer’s financial situation.
Can I pay IRS debt monthly?
Yes, qualifying taxpayers may be able to use an installment agreement to make monthly payments.
Does a payment plan stop interest?
Generally no.
Interest and certain penalties may continue while the balance remains unpaid.
What if I cannot afford any IRS payment?
The IRS may consider temporarily delaying collection when making a payment would create financial hardship.
Does a collection delay erase the debt?
No.
The balance remains owed.
Can tax penalties be removed?
Some taxpayers may qualify for penalty relief depending on their circumstances and filing history.
Do I have to use a tax relief company?
No.
Many IRS payment and resolution options can be reviewed or requested directly.
Can a company guarantee that my tax debt will be settled?
No.
The IRS decides whether a taxpayer qualifies for a settlement or other relief.
What is the difference between a lien and a levy?
A lien is a legal claim against property.
A levy is an action that can allow the IRS to take certain property or funds to satisfy a tax debt.
Having Trouble Paying IRS Tax Debt?
Federal tax debt does not always have to be paid in one large payment.
Depending on the situation, taxpayers may be able to review options such as:
Monthly IRS Payment Plans
Offer in Compromise
Temporary Collection Relief
Penalty Relief
Different options have different rules, costs and requirements.
Explore Tax Debt Relief Options
This website provides general informational content and is not the IRS, a government agency, law firm or tax adviser. Tax laws, IRS procedures and program requirements may change. Review official IRS guidance or consult a qualified tax professional before making tax or financial decisions.
