IRS tax bills, at a glance:
- If you can’t pay your taxes, the most important thing you can do to avoid enforced collection is get into an agreement with the IRS.
- The IRS offers several options, including extensions to pay and payment plans.
- People who are in financial hardship should consider special IRS programs that offer deferred payment and settlement.
You can get expert help resolving the issue when you owe taxes and can’t pay.
What you need to know when you can’t pay your taxes
At some point, almost everyone has a bill they can’t pay. When you file your taxes and can’t pay (or if you still owe taxes from a past return), you have several options. Depending on your circumstances, the IRS offers:
- Extensions for people who need more time to pay
- Payment plans, called installment agreements, with different terms
- Deferred payment (currently not collectible status) and settlement (offer in compromise), for people in financial hardship situations
A tax professional can help you evaluate which option will work best for you, and your tax pro can help work with the IRS to set up the agreement.
One option that is not a good idea is to ignore the issue. If you don’t make any arrangements with the IRS, the IRS can eventually force you to pay. The IRS can file a lien, levy your bank accounts, and garnish your wages.
How to address taxes you can’t pay
1. Confirm that you’re in filing and payment compliance.
- Before you can get in any payment agreement with the IRS, you must file all your required tax returns. You’re also required to withhold enough taxes from your wages and/or make enough estimated tax payments on the current year so that you won’t file and owe in the future.
- If you’re unsure whether you’ve filed all your required returns, call the IRS to research your account. If you have back tax returns, file them to get back in compliance.
- You may have to do a projected tax return for the current year to see whether you withheld enough and/or made enough estimated tax payments. If not, you may have to change your Form W-4 with your employer or make estimated tax payments.
2. Make sure you actually owe the amount of back taxes the IRS says you do.
- Review your tax returns for the year(s) you owe and the prior three years to see whether your tax balance is correct. If you don’t think the amount is correct, you may want to amend your return(s).
- You may also look at any penalties you owe to see whether you can reduce or remove them.
3. Evaluate the options – and choose the best one for your circumstances.
- Consider your facts, including:
- How much you can pay with your existing assets or in monthly payments
- The impact of any potential tax lien
- The impact of any additional penalties and interest
- Based on your facts, choose the best payment arrangement for you. IRS options include:
- A short-term extension of time to pay
- One of several types of monthly payment plans (called installment agreements), with different terms and conditions
- A temporary reprieve based on your documented financial hardship situation (called currently not collectible status)
- The offer in compromise, an IRS option for qualifying taxpayers in highly specific financial circumstances to pay less than the full amount they owe to settle the tax debt
- Gather the personal and financial information necessary to request your option from the IRS.
4. Obtain an agreement with the IRS.
- Contact the correct IRS function before any deadlines to request the payment arrangement you’ve chosen. Provide the IRS with the necessary information to complete the agreement.
- It may take time for the IRS to set up your agreement or consider your option, especially if you:
- Are requesting currently not collectible status
- Owe more than $50,000
- Are requesting an installment agreement that will not pay the entire balance within six years
- Are requesting an offer in compromise
- You may have to appeal an IRS decision if the IRS denies you an option that you are entitled to, based on your facts.
How to get expert help
Your H&R Block tax professional can help you investigate which option is best for you and request it from the IRS.
Make an appointment for a free consultation with a local tax professional by calling 855-536-6504.
Bring these four items to your appointment
- A copy of your IRS notices, especially the most recent notices, on the tax years and balances owed
- If you think you’re in a financial hardship situation and can’t pay the full amount in six years, you’ll need to bring in financial information, such as your bank statements, paystubs, receipts for housing and medical expenses, and other household expenses
- If you have a levy in place, bring your employer’s and/or financial institution’s contact information (name, address, phone and fax number)
- A copy of your tax returns for the years that you owe