Options for Tax Relief When You Can’t Pay Your Taxes
When you can’t pay taxes in full, you still have options: the IRS offers payment plans, temporary collection relief, and even ways to settle for less than you owe, as long as you act quickly and choose the right program for your situation.
As the founder of Complete Controller, I’ve spent over 20 years helping business owners and families navigate tax debt challenges. Through thousands of client interactions across every industry imaginable, I’ve witnessed firsthand that staying silent when facing tax debt always makes things worse. The IRS actually provides far more flexibility than most people realize—but only if you maintain compliance, respond promptly to notices, and match your financial reality to the appropriate relief option. The secret lies in understanding which solution fits your specific circumstances and taking action before collection efforts escalate.
What are your options for tax relief when you can’t pay your taxes?
- You can request more time to pay, set up an installment agreement, seek temporary hardship status, apply for an offer in compromise, or request penalty relief, depending on your finances and compliance history.
- Short-term payment plans give you up to 180 days to pay without setup fees, while long-term installment agreements spread payments over several years.
- Currently Not Collectible status temporarily pauses IRS collection actions when paying would create severe financial hardship.
- An Offer in Compromise allows qualifying taxpayers to settle tax debt for less than the full amount owed.
- Penalty abatement and first-time penalty relief can significantly reduce your total tax bill by removing accumulated penalties.
When You Can’t Pay Taxes: Immediate Steps to Take Before the Deadline
The moment you realize payment problems loom, your actions determine whether you face manageable solutions or escalating collection actions. Opening every IRS notice confirms exactly what you owe and prevents misunderstandings that compound problems later. Filing your return on time, even without payment, avoids the steep 5% monthly failure-to-file penalty that can reach 25% of your unpaid taxes. Making even a partial payment demonstrates good faith and reduces penalty calculations.
Your payment capacity falls into specific bands that determine available solutions:
- Can you gather funds within 180 days?
- Will monthly payments work over several years?
- Would any payment force you to skip essential expenses?
Documenting income, expenses, and assets now saves time when applying for relief programs. The IRS uses strict formulas based on this financial data to determine eligibility for various programs. Accurate documentation prevents delays and denials.
How to avoid making your tax problem worse
Never ignore IRS letters—each unanswered notice escalates collection efforts toward wage garnishments and bank levies. Staying current on this year’s taxes while addressing past debt prevents new problems from compounding old ones. Taking new debt to pay old taxes rarely makes sense unless interest rates and terms significantly favor the new loan over IRS payment plans.
The IRS collection statute expires 10 years after assessment, but hoping to wait it out rarely works. During those years, the IRS can garnish wages, levy bank accounts, and file liens that damage credit and business relationships. Taking proactive steps now prevents these severe consequences.
Short-Term Payment Plans: When You Just Need a Few Months
Short-term payment plans offer the simplest solution when temporary cash flow issues prevent immediate full payment. These plans accommodate taxpayers owing less than $100,000 in combined tax, penalties, and interest who can pay within 180 days. The IRS charges no setup fee for short-term plans established online, by phone, mail, or in person.
During the six-month payment period, collection actions generally pause while penalties and interest continue accruing at current rates—7% annually as of early 2025. This breathing room works well for seasonal businesses awaiting peak revenue, professionals expecting large client payments, or property owners with pending sales.
The absence of setup fees and minimal qualification requirements make short-term plans ideal first options. You can establish one before the IRS formally demands payment, providing early intervention that prevents escalation. The trade-off comes in the compressed timeframe—six months passes quickly when gathering substantial sums.
Long-Term Installment Agreements: Spreading Payments Over Years
Long-term installment agreements become necessary when six months won’t suffice but monthly payments remain feasible. Individual taxpayers owing $50,000 or less and businesses owing $25,000 or less typically qualify for streamlined agreements spanning 36-72 months, though negotiated arrangements can extend to 120 months.
Direct debit agreements offer the lowest fees—just $31 when established online versus $130 for other online payment methods. Low-income taxpayers pay only $43. These reduced fees acknowledge that high upfront costs would block access for those already struggling financially. Monthly payments equal your total balance divided by the agreement length, with flexibility to propose alternative schedules meeting minimum thresholds.
Maintaining an installment agreement requires absolute compliance with current tax obligations. Any new returns must be filed timely, current-year taxes paid in full, and estimated payments made as due. Missing these requirements defaults the agreement, immediately exposing you to aggressive collection actions including wage garnishments and asset seizures.
Interest and penalties during payment plans
Throughout any payment arrangement, interest compounds daily at rates adjusted quarterly—currently 7% annually. On a $36,000 debt over 72 months, total interest paid often exceeds $6,000-8,000. The failure-to-pay penalty adds 0.5% monthly during an active agreement, down from the standard 1% but still substantial over time.
Future tax refunds automatically apply to your balance until satisfied, eliminating expected refund checks many families count on annually. This hidden cost of installment agreements surprises taxpayers accustomed to using refunds for savings or emergencies. Factor this loss into your financial planning.
Business taxes piling up? Complete Controller helps you regain control.
IRS Hardship and “Currently Not Collectible” Status: When You Truly Can’t Pay Anything
Currently Not Collectible (CNC) status provides temporary relief when any payment would prevent covering basic living expenses. The IRS pauses active collection efforts including levies and garnishments, though your debt remains with interest and penalties continuing to accrue. Annual income reviews determine when collection efforts resume based on improved finances.
Qualification requires demonstrating that after necessary expenses for housing, utilities, food, transportation, medical care, and required insurance, no disposable income remains. The IRS uses strict allowable expense standards, expecting liquidation of non-essential assets before granting CNC status. Self-employed individuals must prove their business generates insufficient cash flow to pay taxes while maintaining essential operations.
CNC buys time but doesn’t solve underlying problems. During this status, work on improving income, reducing expenses, or positioning for an eventual Offer in Compromise. The 10-year collection statute continues running, potentially allowing very old debt to expire—though counting on this proves risky given how circumstances change over a decade.
Offers in Compromise: Settling for Less Than You Owe
An Offer in Compromise (OIC) allows settling tax debt for less than the full amount when paying in full would create serious financial hardship or when the IRS determines it represents their best collection opportunity. The IRS evaluates your reasonable collection potential—income, expenses, asset equity, and future earning ability—to determine acceptable offer amounts.
In fiscal year 2023, the IRS accepted approximately 24% of submitted offers, down from historical rates near 40%. Success requires matching your offer to IRS formulas rather than arbitrary amounts. Lump sum offers require payment within five months of acceptance, while periodic payment offers spread over 6-24 months. During review, you must maintain full compliance with all filing and payment obligations.
OICs work best for taxpayers facing long-term inability to pay with limited assets and constrained earning potential. Temporary setbacks rarely qualify unless accompanied by permanent changes in circumstances. Professional assistance often proves valuable given complex calculations and documentation requirements—but avoid firms promising guaranteed results or demanding large upfront fees.
Penalty Relief and Avoiding Predatory Tax Relief Companies
Beyond payment arrangements, penalty relief can substantially reduce total obligations. First-time penalty abatement waives penalties for taxpayers with clean three-year compliance histories. Reasonable cause relief addresses penalties resulting from circumstances beyond your control—serious illness, natural disasters, death of immediate family members, or reliance on erroneous professional advice.
The explosion of “tax relief” companies advertising guaranteed results demands extreme caution. The FTC warns that many firms overpromise outcomes while charging thousands in non-refundable fees. Red flags include guaranteed settlements, pressure tactics, reluctance to review actual finances, and claims of special IRS relationships. Local enrolled agents, CPAs, and tax attorneys with transparent fee structures provide legitimate representation without predatory practices.
Some older income tax debts may qualify for bankruptcy discharge under strict conditions, though payroll taxes and recent obligations rarely qualify. Consider bankruptcy only within comprehensive financial restructuring, not as a tax-only solution. The complexity requires qualified bankruptcy counsel familiar with tax discharge rules.
How to Choose the Right Tax Relief Option for Your Situation
Successful tax resolution starts with honest financial assessment. List all income sources, required living expenses, debts, and available assets including home equity. This clarity reveals whether you can pay within 180 days for a short-term plan, need monthly payments through an installment agreement, require CNC hardship status, or should pursue an Offer in Compromise.
Match your situation to the appropriate program based on payment capacity and timeline. Fix underlying issues by adjusting tax withholdings or estimated payments to prevent new debt accumulation. Build even minimal emergency reserves to avoid future payment problems. For business owners, implement cash flow tracking and monthly financial reviews to catch problems early.
Success requires addressing root causes beyond just the immediate tax debt. In my experience at Complete Controller, sustainable relief comes from fixing the systems and habits that allowed tax debt to accumulate. Whether that means better bookkeeping, realistic estimated payments, or simply understanding your true financial position, systemic improvements prevent recurring tax problems.
Final Thoughts
Tax payment problems feel overwhelming but remain solvable through proper strategy and timely action. The IRS offers genuine relief options—from simple payment plans through hardship status to compromise settlements—but accessing them requires understanding eligibility, maintaining compliance, and matching solutions to your specific circumstances.
From helping thousands of business owners navigate these challenges, I know that facing tax debt directly transforms an undefined fear into a manageable plan. The hardest step is the first one—acknowledging the problem and seeking appropriate help. Once you commit to resolution, options multiply and stress decreases.
Don’t let tax debt control your life or business growth. Contact the professionals at Complete Controller to explore your options and develop a customized resolution strategy. We understand both the technical requirements and human side of tax challenges, guiding you toward sustainable solutions. Visit CompleteController.com today to start your path toward tax resolution and financial freedom.
Frequently Asked Questions About When You Can’t Pay Taxes
What happens if you can’t pay your taxes?
If you file but don’t pay, the IRS charges penalties and interest, may file tax liens, and can eventually use levies or garnishments—but you also become eligible for payment plans, hardship status, or other relief options.
Can I set up a payment plan with the IRS if I can’t pay in full?
Yes. You can request a short-term plan (up to 180 days) or long-term installment agreement if you meet balance and compliance requirements.
Will the IRS forgive my tax debt?
The IRS rarely forgives tax debt outright, but through an Offer in Compromise you may settle for less than the full amount if your reasonable collection potential is low.
What is IRS hardship or Currently Not Collectible status?
It’s a temporary status where the IRS agrees you cannot pay anything without serious hardship and pauses active collection, though interest and penalties continue and refunds may be applied to your debt.
Can penalties be removed if I had a good reason for not paying?
Yes. You may qualify for penalty relief due to reasonable cause or First-Time Abatement if you have an otherwise good compliance history.
Sources
- Consumer Financial Protection Bureau. “Trouble Paying Your Taxes?” Federal Trade Commission, n.d.[13]
- Internal Revenue Service. “Get Help with Tax Debt.” IRS.gov, n.d.[11]
- Internal Revenue Service. “Offer in Compromise.” IRS.gov, n.d.[8]
- Internal Revenue Service. “Options for Taxpayers with a Tax Bill They Can’t Pay.” IRS.gov, 2023.[3]
- Internal Revenue Service. “Temporarily Delay the Collection Process.” IRS.gov, n.d.[10]
- Jackson Hewitt. “What Are My Options If I Can’t Pay My Tax Bill in Full?” Jackson Hewitt Tax Resources, n.d.[5]
- Kaufman Rossin. “Can’t Pay Your Taxes? Consider These Tax Debt-Relief Options.” Kaufman Rossin Blog, 2023.[1]
- MyIRSteam. “IRS Hardship Program Explained: What It Is, Eligibility & How to Qualify.” MyIRSteam, 2023.[2]
- MyIRSteam. “Top 7 IRS Tax Debt Relief Options You Should Know About.” MyIRSteam, 2023.[7]
- Thomson Reuters. “Relief for Taxpayers Who Can’t Pay Their Tax Bill.” Thomson Reuters Tax & Accounting News, 2022.[9]
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.
Brittany McMillen
Brittany McMillen