If you’re dealing with IRS debt, you’re not alone—and you’re not out of options. Whether you underpaid throughout the year or received a surprise balance after filing, the key is to act quickly. Ignoring tax debt leads to compounding penalties, interest, and possibly IRS collections. The good news? There are structured solutions that can give you breathing room and even reduce your balance over time.
1. File Your Tax Return Anyway
Even if you can’t pay what you owe, file your tax return or extension on time. This avoids the late-filing penalty, which is 5% of the unpaid tax per month up to a maximum of 25%.
Why it matters: Filing on time shows the IRS you’re not avoiding your obligations and keeps you eligible for relief programs like installment plans or penalty abatement.
Pro Tip: If you’re worried about accuracy, file with a tax pro to avoid mistakes that could trigger audits.
2. Apply for a Payment Plan (Installment Agreement)
The IRS offers short term and long term payment plans that let you pay off your debt over time. You can usually apply online if you owe less than $50,000 in combined taxes, penalties, and interest.
Types of plans:
- Short term (up to 180 days): No setup fee, but interest and penalties continue
- Long term (monthly payments): Requires a small setup fee; automatic withdrawals recommended
Tip: Avoid third party debt relief firms apply directly at irs.gov
3. Request “Currently Not Collectible” (CNC) Status
If you’re truly unable to pay—due to unemployment, medical bills, or other hardships—you can ask the IRS to temporarily pause collections by requesting Currently Not Collectible status.
What happens:
- IRS will stop garnishments, levies, or liens
- You’ll still owe the debt, but they won’t pursue you
- They’ll recheck your situation later, usually annually
Note: You must prove financial hardship by submitting documentation of income, expenses, and assets.
4. Explore an Offer in Compromise (OIC)
An Offer in Compromise lets you settle your tax debt for less than the full amount—if you qualify. It’s meant for taxpayers who truly cannot afford to pay now or in the foreseeable future.
Requirements include:
- Up-to-date tax filings
- No open bankruptcy cases
- Financial documentation (Form 433-A or 433-B)
Downside: Approval rates are low, and the application fee is $205 (waived for low-income individuals). But if successful, it can be a fresh start.
Tip: Use the IRS’s free Offer in Compromise Pre-Qualifier tool before applying.
5. Don’t Ignore IRS Notices or Let Penalties Snowball
When you owe the IRS but can’t pay, ignoring their letters only makes things worse. Interest compounds daily, and additional penalties can pile up.
What to do
- Read every IRS notice carefully
- Respond promptly or consult a tax professional
- Consider penalty abatement if this is your first time owing
Staying proactive keeps you in control and may even improve your chances of qualifying for relief.
Final Takeaway: What to Do If You have IRS DEBT and Can’t Pay
If you owe the IRS but can’t pay, the most important thing is to take action early. Filing your return, setting up a payment plan, or requesting hardship status shows good faith—and may help you avoid harsher consequences like liens or wage garnishments.
At Martinez Income Tax, we help individuals and business owners navigate IRS debt, file accurately, and explore real solutions that fit your situation.
Schedule a consultation today and let us help you take control of your tax situation—before the IRS takes control of it for you.
