Can't pay your taxes? Here's what to do next.
Owing the IRS money you don't have is stressful, but it's also very common, and the IRS has several programs built for exactly this situation. Here's how to handle it without making it worse.
The short version
- File your return on time even if you can't pay. The penalty for not filing is much bigger than the penalty for not paying.
- Pay what you can now. It shrinks the balance that interest and penalties grow on.
- Most people can get a payment plan. Some qualify to pay less than they owe, or to pause collection.
- Don't ignore the letters. Every step you skip removes options and adds cost.
1File on time, even if you can't pay
This is the single most important thing you can do. The IRS charges two different penalties, and one is far bigger than the other:
| Penalty | How much | Maximum |
|---|---|---|
| Failure to file | 5% of the unpaid tax for each month the return is late | 25% |
| Failure to pay | 0.5% of the unpaid tax for each month it's unpaid | 25% |
Filing on time, even with no payment, avoids the bigger penalty entirely. If you need more time to file, you can request an extension, but remember that an extension gives you more time to file, not more time to pay.
2Pay what you can, as soon as you can
Interest is charged on your unpaid tax and penalties, and it compounds daily. Any payment you make now lowers the balance that interest and penalties are calculated on. You can pay through your IRS online account or IRS Direct Pay at irs.gov.
3Pick the option that fits
The IRS has five main ways to deal with a balance you can't pay in full right away:
- Short-term payment plan. Up to 180 days to pay in full. No setup fee. Good if you'll have the money soon.
- Long-term payment plan (installment agreement). Monthly payments over several years. If you owe $50,000 or less, you can usually apply online without sharing your full finances. Read our payment plan guide.
- Currently not collectible status. If paying anything would leave you unable to cover basic living expenses, the IRS can pause collection. Interest still adds up, and the IRS will check back on your finances.
- Offer in compromise. Settling for less than you owe. The IRS only accepts it when the offer is the most it can reasonably expect to collect, based on your income, expenses and assets. Many people don't qualify, so get an honest assessment before applying.
- Partial-pay installment agreement. Monthly payments you can afford, even if they won't pay off the full balance before the IRS's 10-year collection deadline runs out.
4Ask about removing penalties
Penalties can be a big part of what you owe, and they can sometimes be removed:
- First-time penalty relief is available if you had no penalties in the three previous years and you've filed all required returns.
- Reasonable cause relief may apply if something outside your control, like a serious illness, a death in the family or a natural disaster, kept you from filing or paying.
Removing a penalty also removes the interest that was charged on it.
Mistakes that make it worse
- Not filing because you can't pay. This triggers the much bigger failure-to-file penalty and can lead the IRS to file a return for you, usually with fewer deductions.
- Ignoring IRS letters. Each notice moves you closer to liens and levies. See what each IRS letter means.
- Draining retirement accounts in a panic. Early withdrawals can bring their own taxes and penalties. Look at your options first.
- Trusting "pennies on the dollar" promises. No one can guarantee a settlement before reviewing your finances. Be wary of any company that does.
Common questions
Can I go to jail for not paying my taxes?
Not for being unable to pay. Jail is for tax crimes like deliberately hiding income or filing false returns. Owing money you can't pay is a civil matter, and the IRS has programs to handle it.
Does the IRS forgive tax debt?
Sometimes, through an offer in compromise or by letting the 10-year collection period run out. Both depend on your situation, and neither is automatic.
Will owing the IRS hurt my credit?
The IRS doesn't report to credit bureaus, and tax liens no longer appear on credit reports. A recorded lien is still public, though, and can come up when you apply for a loan or mortgage.
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Written by Jonathan Samuel, EA, an Enrolled Agent licensed to represent taxpayers before the IRS. This page is general information, not advice for your specific situation.