What to Do if You Owe the IRS and Can’t Pay

Filling out your tax return is stressful enough, but realizing that you owe more than what you can afford to the Internal Revenue Service can be terrifying. It’s not exactly a bill you can ignore without dire circumstances, after all! Although panic is a natural reaction when faced with such a financial predicament, it is unnecessary; there are ways to settle your bill that will calm your nerves and the demands of the IRS. 

Complete the process

If you suspect or realize you owe the IRS more money than what you have available, it’s important you still file your tax return as required by law, according to Amy Fontinelle of Investopedia.com. You also don’t want to just completely disregard your tax bill. The inclination to dodge the IRS in either way is dangerous. “The government has the authority to forcibly seize your assets if you don’t try to make good on your income tax liability. In the most extreme situations, you may be subject to jail time,” she adds.

Mine your resources

Although your savings or checking account may not have the funds you need to pay off the IRS, you have other options to consider that can help you chip away at your bill. According to Jeremy Vohwinkle, writer for TheBalance.com, using a credit card, taking out a personal loan, borrowing money from loved ones, or trading in your vacation days from work for cash are resources to review. “Another more extreme option is to pull money out of your IRA or other retirement savings; however, doing so can trigger tax penalties, so it’s best to view that as the option of last resort,” he warns.

Submit a payment

Once you have filed your tax return (on time!) or filed for an extension and then completed the paperwork, assess your finances and see what money you can put toward the IRS. It’s important for you to pay what you can when you can so you avoid additional financial trouble from the IRS. “You may not be able to afford your whole tax bill, but if you pay a portion of that bill, you’ll cut down on the amount of interest you’ll have to pay on the rest of your owed taxes,” explains Alana Benson, writer for Nerdwallet.com.

Work with the IRS

Working with the IRS to address your bill is a great option if you need a lot of time. You’ll need to contact the IRS and apply online. If you prefer real mail, Fontinelle notes Form 9465-FS should help get the process going. “An installment agreement can prevent the IRS from taking enforced collection action. You’ll still owe penalties and interest, but your monthly payments let the IRS know that you intend to make good on what you owe,” she adds.

You can apply for a plan that is short- (120 days) or long-term (requiring 120+ days to fulfil your bill in full), according to Vohwinkle. Either way, establishing the installment plan will cost a fee. “Individuals can apply online for a short-term payment plan if they owe less than $100,000 in combined tax, penalties, and interest. Long-term plans are available online for those who owe $50,000 or less,” he adds.

Finding a way to pay the IRS can be complicated, but the good news is there is a way! Pay your return on time, pay what you can, and work with the IRS so you can be free of the financial burden.