If you can’t pay your tax bill, file your return anyway. The single most important thing to know is that the penalty for not filing is ten times worse than the penalty for not paying, and the IRS offers several ways to pay over time or even settle for less than you owe. You have more options than you probably think.
File Your Return Even If You Can’t Pay
The IRS charges two separate penalties: one for filing late and one for paying late. The failure-to-file penalty is 5% of your unpaid tax for each month your return is late, up to a maximum of 25%. The failure-to-pay penalty is only 0.5% per month, also capping at 25%. That means every month you skip filing costs you roughly ten times more than simply owing money you haven’t paid yet.
If your return is more than 60 days late, the minimum penalty jumps to $525 or 100% of the tax you owe, whichever is less. Filing on time (or requesting an extension) eliminates the larger penalty entirely, even if you send $0 with the return. You’ll still owe the smaller failure-to-pay penalty and interest, but that’s a much better position to be in.
Short-Term Payment Plan
If you can pay what you owe within 180 days, the IRS offers a short-term payment plan with no setup fee when you apply online. You qualify as long as you owe less than $100,000 in combined tax, penalties, and interest. There’s no formal monthly payment schedule; you simply need to pay the full balance before your 180 days are up. Interest and the 0.5% monthly late-payment penalty continue to accrue until you’re paid in full, so paying sooner saves you money.
Long-Term Installment Agreement
If you need more than six months, a long-term installment agreement lets you make monthly payments. You can apply online if you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns. For balances above $50,000, you’ll need to apply by phone, mail, or in person.
Setup fees depend on how you apply and how you pay:
- Direct debit (automatic bank withdrawal): $22 if you apply online, $107 by phone or mail
- Other payment methods (check, card, etc.): $69 online, $178 by phone or mail
If your income falls below a certain threshold, the IRS classifies you as low income. In that case, the setup fee is waived entirely for direct debit agreements, and reduced to $43 for other payment methods (with a possible reimbursement later).
The cheapest route is applying online at IRS.gov and choosing direct debit. You’ll save on the setup fee, and automatic payments mean you won’t accidentally miss a due date, which could default your agreement.
Offer in Compromise: Settling for Less
An offer in compromise lets you settle your tax debt for less than the full amount. The IRS evaluates your income, expenses, assets, and ability to pay, then generally approves an offer when it represents the most the agency can realistically expect to collect. This isn’t a routine option. It’s designed for people who genuinely cannot pay the full balance, not for those who’d simply prefer not to.
To apply, you’ll need to submit Form 656 along with a detailed financial statement (Form 433-A for individuals), a $205 application fee, and an initial payment. Both the fee and the initial payment are nonrefundable, even if the IRS rejects your offer. Low-income applicants are exempt from the application fee and initial payment.
Before you apply, you must have filed all required tax returns and made all required estimated tax payments. You also can’t be in an open bankruptcy proceeding. The IRS provides a pre-qualifier tool on its website that gives you a rough sense of whether your offer has a realistic chance before you spend the $205.
Currently Not Collectible Status
If paying anything at all would prevent you from covering basic living expenses like housing, food, and utilities, you can request that the IRS place your account in Currently Not Collectible status. This temporarily pauses all collection activity. You won’t make payments, and the IRS won’t pursue levies or garnishments while you’re in this status.
To qualify, you’ll need to provide detailed financial information. The IRS may ask you to fill out Form 433-F or Form 433-A and supply documentation verifying your income, monthly expenses, bank accounts, and assets. You can request this status by calling 800-829-1040 or the number on any IRS notice you’ve received.
Your tax debt doesn’t disappear in this status. Interest and penalties continue to accrue, and the IRS periodically reviews your financial situation. If your income improves, the agency may move you back into active collection or offer you a payment plan. But when you’re in genuine financial hardship, this status gives you breathing room.
What Happens If You Do Nothing
Ignoring the problem is the worst option. The IRS follows a predictable escalation path, and understanding it helps explain why acting early matters so much.
First, you’ll receive a bill. If you don’t respond, you’ll get at least one more. When you don’t pay your first bill, a federal tax lien automatically attaches to your property by law. This is a legal claim against everything you own, including your home, car, and bank accounts. Within five business days of filing a public Notice of Federal Tax Lien, the IRS will notify you and inform you of your right to a hearing.
If you continue to ignore the bills, the IRS will eventually send a Final Notice of Intent to Levy, giving you 30 days before it can seize your property, garnish your wages, or take money directly from your bank account. You have the right to request a Collection Due Process hearing by the deadline stated in the notice, which temporarily suspends collection activity while your case is reviewed.
The entire process from first bill to levy can take several months, sometimes longer. But every month you wait, penalties and interest grow, and your options narrow. The IRS is far more willing to work with you when you reach out proactively than after it has started enforcement actions.
How to Choose the Right Option
Your best path depends on how much you owe and what you can realistically afford. If you can pay within six months, the short-term plan costs you nothing to set up and keeps penalties to a minimum. If you need longer, a monthly installment agreement with direct debit keeps fees low and gives you a structured payoff schedule.
If your debt is large and your income is low relative to what you owe, look into an offer in compromise. If you truly can’t afford to pay anything right now, Currently Not Collectible status protects you while you get back on your feet. In every scenario, the first step is the same: file your return, then contact the IRS or visit IRS.gov/payments to set up whatever arrangement fits your situation.