Discovering you owe more than you can afford is stressful, but if you can’t pay taxes on time, you do have options — and ignoring the problem is the worst thing you can do.
File Your Return Anyway
Even if you can’t pay in full, file your return (or an extension) by the deadline. The penalty for failing to file is generally much steeper than the penalty for failing to pay.
Pay What You Can
Paying even a portion of what you owe by the deadline reduces the interest and penalties that accrue on the remaining balance.
Set Up an IRS Payment Plan
The IRS offers both short-term and long-term installment agreements, allowing you to pay off your balance over time instead of all at once.
Consider an Offer in Compromise
In certain circumstances, taxpayers may qualify to settle their tax debt for less than the full amount owed through an Offer in Compromise, though eligibility requirements are strict.
Request a Temporary Delay
If paying would create significant financial hardship, the IRS may temporarily delay collection until your financial situation improves.
Understand the Penalties
- Failure-to-file penalty: Generally more severe, calculated as a percentage of unpaid taxes per month.
- Failure-to-pay penalty: Smaller, but still adds up the longer the balance goes unpaid.
- Interest: Charged on unpaid balances until they’re paid in full.
Look Into Penalty Relief
If this is your first time facing a penalty and you have a clean filing history, you may qualify for penalty abatement.
Retirement Accounts and Taxes
Get Professional Help if Needed
If your tax debt is significant or complex, a tax professional or enrolled agent can help you negotiate with the IRS and choose the best resolution option.
Final Thoughts:
If you can’t pay taxes on time, the most important step is to act — file on time, pay what you can, and explore the IRS programs designed specifically for situations like yours. Delaying only adds penalties and interest to an already difficult situation.
FAQs
1. Should I still file my taxes if I can’t pay?
Yes, you should always file on time or request an extension, since the failure-to-file penalty is generally much steeper than the failure-to-pay penalty.
2. What is an IRS payment plan?
It’s an installment agreement that allows you to pay off your tax debt over time instead of all at once.
3. Can I settle my tax debt for less than I owe?
In certain cases, yes, through an Offer in Compromise, though eligibility requirements are strict.
4. Will I be charged interest on unpaid taxes?
Yes, interest accrues on any unpaid balance until it’s paid in full, in addition to any penalties.