Are you struggling to pay your tax bill, missed a filing deadline, or owe back taxes? Being in debt to the U.S. Internal Revenue Service (IRS) can be daunting and overwhelming. Data from the IRS indicates that in 2018 over 14 million Americans owed money to the IRS due to back taxes, penalties, and interest.
Fortunately, you have options. You may be able to come to a comprise with the IRS if you qualify for one of their tax relieving options.
If you find yourself in debt to the IRS, it’s essential that you:
- Communicate with them as soon as possible to work out a deal
- File taxes on time, regardless of whether you can pay them
- File for an extension if you need extra time to complete your taxes
- Pay what you can on your taxes
If you don’t file on time, you may be charged a monthly late penalty and interest on the balance. Alternatively, you could face a penalty for failure to file your taxes. To learn the consequences of not paying your taxes on time, click here.
You don’t have to manage IRS debt alone. Talking with an IRS tax specialist can help you determine the best options for you to resolve your debt. The Tax Debt Relief Hotline at (888) 452-7841 can connect you with an IRS tax debt specialist who can answer your questions and discuss potential next steps to help you now.
7 Options to Help You Resolve Your IRS Debt
The IRS will contact you if you think you owe them money either from back taxes, mistakes on a tax filing, under-reporting of your income, and more. If the IRS contacts you, you need to address the issue. If you ignore them, they may take action against you, such as liens, levies, or garnishing your wages. Additionally, you could incur additional penalties and interest on your debt.
Fortunately, you have options to help you deal with IRS debt. While not all options work in every situation, here are seven different ways that may help you resolve your IRS debt.
1. Establish a long-term payment plan with the IRS
The IRS may be willing to let you set up a long-term payment plan called an installment agreement. This plan allows you to pay the debt over more than 120 days at a rate you can afford. that will involve payments over more than 120 days. allows you to pay your debt over time at a rate you can afford.
Typically, you’d pay an agreed upon amount to the IRS each month. Interest and penalty charges may still be added to the amount until you pay the balance in full. So, you may end up paying for more than your initial debt. If you apply for an installment agreement, you may also have to pay a setup fee, although some people may qualify for a waiver.
2. Set up a short-term payment plan with the IRS
If you can pay your debt in less than 120 days, you may qualify for a short-term payment plan. One advantage of a short-term payment plan is that you won’t be liable for a user fee. However, you may still accrue interest or late fee penalties until you’ve paid in full.
3. Check your eligibility to settle your debt for less than the full amount
The IRS may allow you to pay less than what you owe if you qualify for an ‘offer in compromise’ if your tax liability creates a financial hardship or you can’t pay the full amount. The IRS considers several factors, including your ability to pay, income, expenses, and asset equity.
The IRS suggests exploring all other payment options first before you apply for an offer in compromise.
4. Check whether you’re eligible for the IRS Fresh Start program
The Fresh Start program was created in 2011 to make it easier for more people and small businesses to settle or repay their back taxes and tax debt over several years (up to 6 years). Spreading out your payments will result in lower monthly minimum payments that are easier to repay. Another benefit is that you may be able to avoid some additional penalties and interest. If you $50,000 or less, you may be eligible for this program.
5. Determine whether you can apply for Innocent Spouse Relief
If you file jointly, you may qualify for Innocent Spouse Relief if you can prove your spouse under-reported or omitted items on your tax return. If accepted, you will not be held accountable for any tax, interest, or penalties that were due to your spouse’s (or former spouse’s) error.
You can only apply this relief to individual income or self-employment taxes. If there is debt that doesn’t qualify, you will be responsible for that portion individually or jointly.
6. Determine if you qualify for Currently Not Collectible status
If paying your tax debt will cause you to go below the basic standards of living, you may be able to claim the Currently Not Collectible status. You have to prove that paying your tax debt won’t leave you enough money each month to pay for essential living expenses like rent, food, and utilities.
The Currently Not Collectible status allows you to defer your payments. During this period, the IRS will not try to collect the taxes you owe. You also won’t have to set up an installment plan or face garnished wages or a levy on your bank accounts. This approach does not resolve the tax you owe. It merely allows you to defer payments for a year or two until you can pay.
7. Decide if filing for bankruptcy makes sense for you
You may be able to discharge some or all of your tax debt by filing for bankruptcy. A Chapter 7 bankruptcy may provide a full discharge of debt, and a Chapter 13 bankruptcy may allow for partial discharge and a payment plan for you to repay some of the debt.
You shouldn’t enter into bankruptcy lightly as it can impact you in other ways, such as harm to your credit, and your debt becomes public knowledge. Additionally, not all tax debt qualifies for discharge under bankruptcy. Income taxes and some property taxes are eligible, but other types typically are not. Your tax debt often has to be at least three years old, and you’ll have to be able to show you filed returns properly. Existing liens won’t be removed, but you can prevent new lien petitions if you qualify for bankruptcy.
You Have Options When Settling Your IRS Tax Debt
Acquiring tax debt can lead to stress and financial instability. If you find yourself falling behind, it’s essential to respond to any IRS communications and file taxes on time, even if you can’t afford to pay your taxes.
Fortunately, there are options available to help you settle your tax debt. However, it can be confusing to determine the right choice for you. Before responding to the IRS, you can talk with a tax expert to answer your questions and help you determine how to settle your debt. The free Tax Debt Relief Hotline at (888) 452-7841 can connect you with a qualified IRS tax debt specialist who can help you determine potential next steps and answer your questions.