If you can't pay your income taxes, the IRS provides several options to deal with the debt. Read on to learn about them.
(For more information about income tax debt, see our Back Taxes & Tax Debt area.)
If you cannot pay the IRS taxes you owe, the IRS will encourage you to charge the extra amount on your credit card. This may be a bad idea, because the interest on your credit card will probably be a lot higher than the interest and penalties the IRS will charge if you reach an agreement with them.
If you owe the IRS up to $10,000 and you have not been in tax trouble recently, you are entitled to an installment agreement to pay your taxes. Interest and a penalty are added to your tax debt each month. You can have up to three years to pay what you owe.
You have the right to an installment agreement if all of the following are true:
(To learn more, see IRS Installment Payment Plans.)
Even if the amount you owe exceeds $10,000, or it will take you more than three years to pay, or you’ve defaulted on an agreement with the IRS in the past, the taxman might still be willing to negotiate a payment plan if you can convince the agency that you’ll stick with it.
If you cannot afford an installment agreement, you can make an “offer in compromise.” This means that you make a lump sum offer to the IRS to settle what you owe. The IRS will accept an offer in compromise in only three situations:
You must also meet all of the following:
(To learn more, see Using an Offer in Compromise to Settle a Tax Bill.)
For more articles on managing debts and dealing with particular debts, see the articles in Dealing With Debt: When You Can't Pay Your Bills.
This is an excerpt from Nolo's Solve Your Money Troubles: Debt, Credit & Bankruptcy, by Margaret Reiter and Robin Leonard.