What happens if you owe the IRS – and you can’t pay? First, be sure to file your return anyway to avoid penalties for non-filing. Then consider the following options, and choose the one that fits your financial situation.
Options When You Owe the IRS and Can’t Pay Right Away
Can you pay off the balance within 120 days? If so, apply for a short-term payment agreement. No fee is required.
Need more time? The IRS offers four types of installment plans. Generally, a fee of $120 is required ($52 if you pay through direct debit). To qualify, you have to first file all tax returns that are due and agree to pay on time in the future. Here are the available plans.
- If your balance due is no more than $10,000 and you can pay it off within 36 months, you may qualify for a “guaranteed installment agreement.”
- If your balance is $50,000 or less and you can pay it within 72 months, you may qualify for a “streamlined installment agreement.” Financial statements aren’t usually required for guaranteed or streamlined agreements, and no tax liens will be filed.
- If you can’t qualify for either a guaranteed or streamlined installment agreement, you can apply for a partial payment agreement. Your monthly payments will be based on what you can afford after meeting your living expenses. The IRS will require a financial statement and may file a tax lien to protect its interest.
- If your balance due is over $50,000 and/or you need an extended repayment period, you’ll need to negotiate a “non-streamlined” installment agreement directly with an IRS agent.
If none of the above methods will work, consider applying for an “offer in compromise.” That’s a procedure for paying less than you owe. In some cases, the IRS will settle for the maximum amount it deems collectible within a reasonable period, even though that amount is less than the balance due.