IRS NOTICES

What happens if I can’t pay my taxes?

SHORT ANSWER

File anyway, then arrange payment. The failure-to-file penalty is far larger than the failure-to-pay penalty, so filing on time even without payment saves you money. The IRS offers installment agreements and, in hardship cases, an offer in compromise or temporary “currently not collectible” status.

Not being able to pay your tax bill is a common and solvable situation — the worst move is not filing. The failure-to-file penalty accrues much faster than the failure-to-pay penalty, so filing your return on time, even with nothing attached, immediately limits the damage. From there the IRS has structured options: short-term extensions, monthly installment agreements, an offer in compromise for those who qualify, and a temporary non-collectible status if paying anything would cause real hardship.

What to do, in order

  1. File your return on time no matter what — this avoids the larger failure-to-file penalty.
  2. Pay whatever you can now to reduce penalties and interest on the rest.
  3. Apply for an installment agreement to pay the balance over time.
  4. If paying is a genuine hardship, ask about currently-not-collectible status or an offer in compromise.
  5. Keep responding to notices — ignoring them leads to liens and levies.

Common questions

Is it better to file even if I can’t pay?

Yes. The failure-to-file penalty is much larger than the failure-to-pay penalty, so filing on time saves money even if you send nothing with the return.

What is an installment agreement?

A payment plan that lets you pay your tax debt in monthly amounts. Many taxpayers can set one up online, and it stops most escalated collection while you pay.

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This is general information, not legal, tax, or financial advice, and it doesn’t create a professional relationship. Rules have exceptions and change over time. For advice on your specific situation, consult a licensed professional.