What Happens If You Can’t Pay Taxes? IRS Payment Options

Tax season can be stressful, especially when you’re looking at a hefty tax bill. Paying what you owe can be tough for anyone, and that’s precisely why the Internal Revenue Service (IRS) offers payment plans and other options to make your tax bill a little more manageable. In this article, we’ll explore what happens if you can’t pay your taxes, and what options may be available to you.

What if I can’t pay my taxes?

Received your tax bill and wondering, “What if I can’t pay my taxes?” No need to panic, there are a few different paths you can take if you find yourself in this situation.

First, consider starting with these three steps: file, pay what you can, and figure out an option for the remaining balance.

Filing your federal tax return tells the IRS whether you owe taxes or if you should receive a tax refund. If you’re still gathering forms, an extension gives you more time to file the return, but it’s not an extension of time to pay taxes that were already due.

When you can’t pay in full, pay as much as possible with the return, then look into IRS payment options to find what works best for you. We’ll explore potential options below.

IRS payment plans

An IRS payment plan, otherwise known as an installment agreement, is a way to pay taxes you owe over an approved timeframe. Keep in mind that plans don’t erase interest, and many taxpayers still accrue penalties until the balance is zero. Still, a plan can make the monthly cash flow manageable and, in some cases, reduce ongoing failure-to-pay penalties once you are approved.

While short-term plans require paying the full balance within 180 days or less, long-term plans spread repayment through monthly installments until the debt is satisfied (subject to collection time limits). The type you can use online depends on your balance and whether you are an individual or business filer.

Short-term payment plans

If you qualify, a short-term plan gives you extra weeks to pay the full amount while you use normal IRS payment channels, such as Direct Pay or your IRS Online Account. As an individual, you can apply online, and you generally qualify if you owe less than $100,000 in combined tax, penalties, and interest. Businesses, however, can only apply over the phone or in person to set up a short-term plan. The setup fee for a short-term plan is $0, but penalties and interest continue to accrue until you pay in full.

Long-term payment plans

Unlike short-term plans, long-term payment plans are paid in monthly installments. Many people qualify online if they owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns. Here’s how you can apply:

Online

By phone at 800-829-1040 (individual) or 800-829-4933 (business)

By mail using Form 9465 (Installment Agreement Request)

Through software, like TaxAct

The IRS charges a user fee that depends on whether you use direct debit and how you apply. Low-income taxpayers may qualify for a reduced fee, a waiver, or reimbursement. Fees and thresholds can change, so always confirm the current table before you apply.

Plan typeTypical timelineSetup fee (general)Penalties and interestShort-termUp to 180 days to pay in full Usually freeContinue until paid in fullLong-termMonthly payments until balance is paidVaries by application (direct debit/non-direct debit)*Continue until paid in full

*Note: The long-term plan setup fees are $22 online and $107 by phone, mail, or in-person when using direct debit. For non-direct debit options, the fees are $69 online and $178 by phone, mail, or in-person. Low-income taxpayers may qualify for a waiver, reduction, or reimbursement.

If you can’t meet the minimum payment that the online tool calculates, the IRS may ask for a collection information statement, such as Form 433-H, Form 433-F, or Form 433-B, depending on your situation.

IRS tax payment options

Aside from the standard short-term and long-term plans, the IRS also offers several other payment options, including:

Offer in Compromise (OIC). An agreement to settle for less than the full amount owed if you meet strict eligibility rules. You’re generally not eligible if you are in an open bankruptcy proceeding.

Temporary delay of collection. If paying anything would prevent you from covering basic living expenses, you can ask the IRS to consider marking your account as “currently not collectible.” While that doesn’t erase debt, and interest and penalties may still accrue, the IRS may file a Notice of Federal Tax Lien under certain circumstances.

Pay by card or loan. Topic 202 notes that a bank loan or credit card may charge less than the combination of IRS interest and penalties. You can compare the annual percentage rate (APR) and fees to the cost of carrying a federal balance.

Installment agreement. As we mentioned earlier, you can apply for an installment agreement, otherwise known as a long-term payment plan.

Direct Pay/Electronic Federal Tax Payment System (EFTPS). You can also pay in full using IRS Direct Pay, the EFTPS system for enrolled users. Processing fees apply for debit or credit card payments through IRS-approved processors.

IRS penalties and interest

Here’s where the potential consequences of not paying your taxes come in: penalties and interest. When tax isn’t paid by the due date, the unpaid balance is subject to interest and, in many cases, penalties. Interest and some penalties will keep accruing until the balance is paid in full, so paying early in the cycle helps.

Failure-to-pay penalty

The failure-to-pay penalty applies when tax isn’t paid by the due date. For tax shown on a timely-filed return, the IRS generally calculates it as 0.5% of the unpaid tax per month, or part of a month, up to a maximum of 25%. If you filed on time as an individual and enter an approved payment plan, the rate may drop to 0.25% per month while the plan is in effect. Different rules can apply if tax was not reported on the original return or if you receive certain collection notices.

Failure-to-pay penalty can increase to 1% per month if the taxpayer does not pay within 10 days after receiving a notice of intent to levy.

Failure-to-file penalty

Another IRS penalty is the failure-to-file penalty, which is separate from the failure-to-pay penalty. This penalty applies when you don’t file by the filing deadline, including the extension deadline. The failure-to-file penalty is 5% of the tax due for each month the return is late. This penalty can accrue up to 25%, which is why it’s always better to file, even when you can’t pay. There may also be a minimum penalty when a return is more than 60 days late.

IRS interest

Interest is another factor that may affect you if you don’t pay on time. Interest accrues on unpaid tax (and on some penalties) until you pay the balance you owe. The interest rate is determined under federal law and can change quarterly.

Note: If you have a reasonable cause for paying late, you can apply for penalty relief.

FAQs

What happens if I can’t pay my taxes?

The first thing you should do is continue filing your return or request a tax extension by the deadline, then pay as much as you can with your filing. After that, use IRS.gov/payments or the Online Payment Agreement tool to request a short-term or long-term plan, or call the IRS using the number on your notice. Keep in mind that filing on time prevents a failure-to-file penalty from being added to failure-to-pay charges.

Does the IRS offer a payment plan if you can’t pay taxes?

Yes. The IRS offers short-term plans that give you up to 180 days to pay in full, and long-term installment agreements with monthly payments. Eligibility depends on your balance, filing history, and whether you’re an individual or a business. The IRS includes current dollar thresholds and fees on its payment plans page.

What is the difference between a short-term and long-term IRS payment plan?

A short-term plan covers paying the entire balance within 180 days, usually with no setup fee for qualifying applicants, while penalties and interest still accrue. A long-term plan divides the balance into monthly payments until it’s paid off. This plan also charges a user fee, depending on how you apply and whether you pay by direct debit. Long-term plans generally require you to stay up to date on new tax filings and payments.

How much is the IRS penalty if you pay taxes late?

The federal failure-to-pay penalty is generally 0.5% per month (or part of a month) on the unpaid tax, and up to 25% total. The rate may be 0.25% per month for some individual filers who filed on time while an approved installment agreement is in place.

Does the IRS charge interest if I pay my taxes late?

Yes. Interest accrues on unpaid tax from the due date until the balance is paid, and it may also accrue on some penalties. The rate is set under federal law and is updated on the IRS interest page. Setting up a payment plan doesn’t stop interest from accruing on the remaining balance.

What happens if you file taxes late?

If you file taxes late, you may receive a failure-to-file penalty. The failure-to-file penalty is 5% of the tax due for each month the return is late. This penalty can accrue up to 25%, and a minimum penalty may apply when a return is more than 60 days late.

What happens if I ignore my tax bill?

If you don’t pay and do not make other arrangements, the IRS may send notices, file a Notice of Federal Tax Lien, and eventually use enforced collection tools such as a levy, depending on your situation and appeals rights. While a payment plan request is pending or certain appeals are open, the IRS generally limits some collection actions as described in Topic 202. However, responding early keeps more options on the table.

The bottom line

You may not be able to pay your whole tax bill at once, but you can still file, pay what you can, and choose a plan that fits your cash flow. Short-term and long-term payment options, plus the ability to move money through Direct Pay, your online account, or other approved methods, may also be helpful options for you.

File your taxes with TaxAct to confidently complete an accurate return and understand whether you owe.

This article is for informational purposes only and not legal or financial advice.

All TaxAct offers, products and services are subject to applicable terms and conditions.

Citations

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