What Are Your Payment Options If You Owe the IRS?

The IRS will work with you if you simply cannot pay in full

A woman sits at her dining room table with laptop and tax paperwork
Photo:

RichVintage / Getty Images 

It's already stressful enough to complete your tax return, but it can be even worse to realize that you owe money to the Internal Revenue Service (IRS) and you don't have the cash available to make a lump sum payment. But the IRS has dealt with this dilemma many times before. It offers a few options and grace periods.

Key Takeaways

  • You'll have tax debt until you pay it off if you owe money to the IRS, but there are many options available to help you pay.
  • The sooner you're able to pay off your tax debt, the less you'll pay over time in interest charges and penalties.
  • You may qualify for an installment plan if your debt is within a certain dollar range and you can't pay within 120 days.
  • Help is available for taxpayers who can't pay their debt at all including temporary delays in collection or potential offers in compromise.

How Soon Can You Pay?

First, figure out how quickly you can pay off the tax debt. Paying it all at once will save you some money if you can come up with the cash. The IRS will continue to assess late payment penalties and interest up through the date you pay in full.

The IRS charges interest at the rate of 0.5% of the amount you owe each month, up to a total of 25% of your tax debt.

If You Can Pay Within 45 Days 

You have another option if you can't pay your tax bill in its entirety right now, but know that you'll be able to do so within 45 days. Send in a partial payment using the Form 1040-V payment voucher when you file your tax return.

Note

Most tax preparation software provides Form 1040-V. It's also available on the IRS website. 

Then wait for the IRS to send you a letter called the Notice of Tax Due and Demand for Payment. It will detail your outstanding balance and any late charges that have been added.

The IRS usually provides a grace period of 21 days after sending that letter to avoid additional interest and penalties. If payment is not received within 60 days, the agency can proceed with collection activity.

Pay your remaining balance by the deadline set by the IRS if you possibly can.

If You Can Pay Within 120 Days 

The process is similar if you can pay off the tax you owe within six months. Send in a partial payment using Form 1040-V, then wait for the IRS to send you a letter telling you how much you owe, including interest and late charges.

Next, call the IRS at the number shown on the letter. Request a short-term extension of time to pay beyond the date set in the letter.

Propose a definite deadline for paying off your balance in full when you talk to an IRS representative. They'll note that date in your records. Use the payment voucher that's included with the letter to make your next and final payment.

Calling the IRS is important with this payment tactic. It will prevent the agency from taking more aggressive collection actions. You're letting the agency know that you're on top of the situation and trying to fix it.

If You Need More Than 120 Days

The IRS will usually let you set up a monthly payment plan called an "installment agreement" if you need a more significant amount of time to pay off your tax debt. This is a formal agreement to pay the IRS over time. The agency will likely approve your payment plan if it would pay off your tax debt in six years or less.

Depending on how much you owe, you might also have to submit a financial statement. Streamlined installment agreement applications that don't require a financial statement are available for taxpayers who owe up to $50,000.

The IRS does charge a fee to set up these plans. It ranges from $31 to $225 as of the 2023 tax filing season, depending on how you make your payment. There are options and reduced fees available to low-income taxpayers who qualify. This is a one-time fee that's paid upfront. It is often part of your first payment.

You can apply for an installment agreement on the IRS website if you owe $50,000 or less. You can also file your request on Form 9465.

Your interest rate will drop to 0.25% if you commit to an installment agreement.

Temporarily Delay Collection

This option doesn't come with a set date by which you can pay off the IRS. It's available only if the IRS agrees that collecting from you at this point in time would present an undue financial hardship to you. Your tax debt doesn't go away. It's just put on hold until such time as your finances recover.

You must be able to prove that you wouldn't be able to meet your necessary living expenses if you were to pay the debt. The IRS will categorize your matter as "currently not collectible." Penalties and interest will continue to accrue, however.

Note

The IRS is effectively agreeing not to aggressively pursue you for the money by way of levies and other collection avenues available to it when it agrees that your tax debt is "currently not collectible."

When You Can't Pay Your Taxes at All

It's best to seek advice from a tax professional who's authorized to represent you before the IRS if you aren't able to pay your taxes at all. Reach out to a CPA, a tax attorney, or an enrolled agent.

Many tax clinics provide free or low-cost access to tax professionals. That's generally a good place to start if you need help. A competent tax professional can evaluate your options, which might include:

  • Temporary delay
  • Partial payment plan
  • Offer in compromise

Note

The Taxpayer Advocate Service also provides free help to taxpayers who have problems with the IRS.

The Bottom Line

The worst thing you can do is to do nothing if you owe money to the IRS. The agency typically welcomes all overtures to get tax debts paid. It might even accept less than what you owe if your financial situation qualifies. 

Frequently Asked Questions (FAQs)

How does the IRS decide if paying is an undue financial hardship?

Paying your tax debt would be considered to be an undue financial hardship and your debt would be considered not collectible if you weren't able to meet your allowable living expenses if you gave your money to the IRS instead. But the IRS sets limits as to how much of each of your expenses is allowable. For the 2022 tax year, $431 per month for food is considered allowable for a one-person household.

How low does my income have to be to qualify to have the fee waived or reduced for an installment agreement?

It depends on the size of your household and your state of residence. You'll have a higher limit if you live in Alaska or Hawaii. Otherwise, you're considered to be low income if your family of four lives on $75,000 a year or less as of 2023. The thresholds are based on the 2023 U.S. Department of Health & Human Services poverty guidelines, and they're available on IRS Form 13844, the application for a reduced fee.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Frequently Asked Questions/Collection Procedural Questions 3."

  2. Taxpayer Advocate Service. "Notice CP14."

  3. Taxpayer Advocate Service. "Payment Plans."

  4. IRS. "IRS Makes It Easier to Set Up Payment Agreements; Offers Other Relief to Taxpayers Struggling With Tax Debts."

  5. IRS. "Additional Information on Payment Plans."

  6. IRS. "Instructions for Form 9465."

  7. Taxpayer Advocate Service. "Currently Not Collectible."

  8. IRS. "2022 Allowable Living Expenses National Standards."

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