What to Do if You Can’t Pay the IRS Back

A big tax bill can be immobilizing.

However, a dread of not being able to pay should not keep you from filing.

If you are unable to pay your tax bill, this article will walk you through why you should still file your taxes, and what your options are after filing.

Owing to a large sum to the IRS does not mean life as you know it is over.

Surprisingly, the IRS wants to work with you, and it is better to have them working with you than it is to have them working against you.

However, it is important to make sure you have the right tax experts represent you when it comes to finding out how much you really owe and how they can help you settle your tax debt. 

I have had my own experience with a tax bill that seems impossible to pay off.

A few years back I recall being a place of panic.

I saw the amount I owed, and my brain went into a tailspin, as I realized there was no way I would be able to pay the amount due.

However, I still chose to file my return because I knew that tax evasion would result in far worse penalties than tax debt.

The importance of filing your taxes

Even if you know that there is no way you will be able to pay your taxes, it is still important that you file regardless.

According to the IRS failure to pay penalties are generally less than failure to file penalties.

By paying as much as you can, it is possible to reduce additional interest and penalties.

It is better to file and work with the IRS than it is to evade them.

If you choose not to file, the penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a tax return is late.

The penalty will begin to accrue the day after the tax filing due date.

The penalty will not exceed 25% of the owed tax amount.

For example, if you choose not to file your taxes because you know you owe $10,000 if taxes are due on April 15th and you do not file, you will be to be penalized on April 16th.

By May 16th if you still have not filed and paid, you will owe an additional $950.

By comparison, if you do file and are just unable to pay, the penalty is generally only 0.5% per month of unpaid taxes.

Do not be afraid if you can not pay your taxes right away.

It is better to file and work with the IRS than it is to have them chase you down and take more money from you.

What will the IRS do if I can’t pay?

If you are unable to pay your taxes, the IRS will most likely be willing to work with you to create a payment plan.

In case you need just a few extra weeks to pay off your tax debt in full, you can apply for the guaranteed installment agreement.

With this option, there is no minimum monthly payment.

However, you will want to pay as much as possible as soon as possible to avoid rising interest rates.

With this method, there are no fees so long as your debt is paid within 120 days.

To apply for this payment plan fill out IRS form 4868.

If you need more than 120 days to pay your tax debt, the individual installment agreement may be a good option for you.

If you owe $50,000 or less in taxes, you may be eligible for an individual installment agreement.

This payment option allows you to make your payment over monthly installments. This option is convenient as the payment method is flexible.

It is essential to set up an installment plan that you will be able to keep up with without defaulting.

To apply for the installment agreement plan fill-out and mail IRS Form 9465 or visit the IRS website and fill out the online payment agreement application.

If you owe more than $50,000, it may be a bit more complicated to set up a payment plan with the IRS.

You will not be able to apply for the payment plan online, and you will need to provide some additional financial information such as any accounts and lines of credit you have, any assets you own including real estate), and your monthly income and living expenses.

From here the IRS will assess your financial situation and a payment plan will be created upon IRS approval.

If you own a small business and owe less than $25,000, you can still apply online using the Online Payment Agreement Application.

You will also need to file an In-Business Trust Fund Express Installment Agreement (IBTF-IA) online.

However, you will not need to provide a financial statement.

The most common time frame to pay this off is about two years.

If you owe between $10,000 and $25,000 for your small business, you’ll set up a Direct Debit installment agreement which has a $52 fee associated with it.

Tax Debt Settlement

If you are unable to use any of the payment plan methods to pay your debt, you can try to file for undue hardship.

Through this method, you must show proof that demonstrates that paying your debt will cause financial hardship or financial loss.

An example of this would be having to sell your home to pay your tax debt.

To file for undue hardship, you will need IRS Form 1127.

If you just recently lost your job for example and you have trouble making ends meet you may qualify for undue hardship if you can demonstrate your financial situation to the IRS using appropriate financial documents.

As a last resort, you may be eligible for a tax debt settlement or offer in compromise.

With this, you agree to pay less than the amount you originally owed.

However, in most cases, you must demonstrate extreme financial hardship.

The IRS offers a tool on their website that can help you determine if an offer in compromise is something you may qualify for.


Debt can be intimidating, and it is easy to get overwhelmed.

Before you know it, you may start to feel desperate and like you do not have options.

However, as this article outlined, the IRS is willing to work with you to get your tax debt paid off.

Even if your debt seems unbearable, it is better to file your taxes and use the IRS as a tool to create a game plan than it is to ignore your debt, only to have it get bigger and bigger over time.

If possible, take preventative measures and be sure your tax documents are prepared well before the tax deadline so that you can file on time.

If you know you will not be able to pay your taxes, do not panic.

Instead, begin to look into your options.

The IRS website is a great resource offering information as well as online assessment tools that can help you begin to figure out what debt payment method will work best for you and what you qualify for.

Tax debt can be totally managed, do you know what options you have when dealing with tax debt?

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