When You Can't Pay Income Taxes

Here are some options if you have trouble paying your income taxes.

If you can't pay your income taxes, the IRS provides several options to deal with the debt, like an installment agreement or an offer in compromise. Read on to learn about them. (For more information about income tax debt, see our Back Taxes & Tax Debt area.)

IRS Installment Agreement

If you can’t afford to get caught up on your taxes, you might be eligible for an installment plan with IRS. With this kind of payment plan, you pay your taxes over time while avoiding garnishments, levies, and other collection actions.

  • 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.
  • If you owe the IRS $50,000 or less, you might be eligible for a streamlined installment plan giving you 72 months to pay.
  • If you owe the IRS over $50,000 at the time you ask for a payment plan, the IRS will thoroughly examine your finances, including your investments, assets, income and bank accounts. If you have any meaningful assets, you might have to sell some to pay down the outstanding balance.

(To learn more, see IRS Installment Payment Plans.)

Offer in Compromise

If you can't 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

  • There's some doubt as to whether the IRS can collect the tax bill from you, now or in the foreseeable future. The IRS calls this "doubt as to collectibility."
  • Due to exceptional circumstances, payment of your full tax bill would cause an "economic hardship" or would be "unfair" or "inequitable."
  • There is doubt as to whether the tax liability assessed is correct, called "doubt as to liability."

The IRS recommends you use its online pre-qualifer tool to determine whether you are eligible to make an offer in compromise. (To learn more, see Using an Offer in Compromise to Settle a Tax Bill.)

Charging Income Tax Debt to a Credit Card

If you can't pay the IRS taxes you owe, the IRS might 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.

Using Bankruptcy to Discharge or Help Pay Your Tax Debt

Finally, you might be able to eliminate, reduce, or spread out your IRS debt by filing for bankruptcy. For details, see Tax Debts in Chapter 7 Bankruptcy and Tax Debts in Chapter 13 Bankruptcy.

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.

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