How to Find IRS Tax Debt Relief
It’s easy to panic if you receive a notice saying you have IRS tax debt, especially if you can’t afford to immediately pay it off.
Fortunately, you have several options for tax debt relief with the IRS — like requesting a “currently not collectible” status, an installment agreement or an offer in compromise. You can also explore alternatives to IRS tax debt relief programs like taking out a loan or working with a tax relief company.
Key takeaways
- The IRS offers short-term and long-term payment plans for people who can’t afford to pay off their tax debt balances in full.
- If you can’t afford to make payments, the IRS offers the option to temporarily pause your tax debt. Or, you can apply for an offer in compromise, which may allow you to settle for less than you owe.
- It can be hard to qualify for IRS tax debt relief, and your debt may accrue interest and penalties while you wait.
- Alternatives to resolving your debt directly with the IRS, such as working with a tax debt relief company or taking out a loan to pay off your taxes, are also worth considering.
IRS tax debt relief options
IRS payment plans
An IRS payment plan — or an installment agreement — allows you to pay off your IRS debt over time by making regular payments. Taxpayers can choose between short- and long-term payment plans.
The length of your payment plan and how much you pay each month depends on how much you owe and what you can afford to pay. The IRS will charge interest and penalties until your balance is paid off with both payment plans.
This option is best if you can’t afford to pay off your full balance immediately but can afford to break it up into monthly payments. You can apply for a payment plan on the IRS website.
Short-term IRS payment plan
A short-term IRS payment plan lasts 180 days or less, so it’s best for people who can afford to pay off their tax debts within six months.
You must owe $100,000 or less in taxes, penalties and interest combined to qualify for a short-term payment plan. There’s no setup fee, but there are fees for paying with a card.
Long-term IRS payment plan
A long-term IRS payment plan is an installment agreement that’s longer than 180 days. This plan is best for people who can’t afford to pay off their tax debts within the next six months. To qualify, you must owe $50,000 or less in taxes, penalties and interest combined.
There’s a $22 setup fee if you want to pay via automatic withdrawals from your checking account or a $69 setup fee if you don’t.
The IRS waives the $22 fee for eligible low-income individuals who choose automatic withdrawals. The nondirect debit payment fee is reduced to $43, but you may be able to get this fee waived or reimbursed.
Payment plan | Repayment period | Max you can owe to qualify | Fees |
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Short-term plan | 180 days or less | $100,000 |
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Long-term plan (with autopay) | More than 180 days | $50,000 |
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Long-term plan (without autopay) | More than 180 days | $50,000 |
|
Offer in compromise (OIC)
You can negotiate your debt for less than what you owe by applying for an offer in compromise (OIC). The IRS has strict requirements for OICs, but it’s worth considering if you’ve explored all other payment options and still can’t pay off your debt.
You can use the OIC prequalifer tool to determine your eligibility and a recommended offer amount.
How to apply for an OIC
You’ll need to submit the following to apply:
- Form 656
- Form 433-A
- $205 application fee (unless you’re a low-income filer)
- An initial payment (unless you’re a low-income filer)
It can take up to 24 months for the IRS to process your OIC.
How to get approved for an OIC
The IRS typically only approves an OIC if it believes your offer is the most money you can afford to pay in a reasonable time. This is based on your income, expenses and asset equity.
If your offer is accepted, you can pay it as a lump sum or in monthly payments. If your offer is too low, the IRS may let you increase your offer. If you choose not to increase it, your offer will be rejected.
To qualify, you must also:
- Be current on filing all your tax returns and estimated payments
- Not be in the process of bankruptcy
- Have an approved tax extension for the current year if you’re applying for the current year
Innocent spouse relief
If you filed a joint return and your spouse underreported what you owe, you may qualify for innocent spouse relief as long as you weren’t aware of the error.
You must request relief within two years of receiving an IRS notice. The IRS will contact your current or former spouse as part of the review process, but it may take up to six months or longer to receive a decision.
You can only request innocent spouse relief if:
- You filed a joint return with your spouse
- Your spouse underreported your taxes due to errors (e.g., unreported income, incorrect deductions or credits, or incorrect values for assets)
- You were unaware of the errors
- You live in a community property state
This type of IRS tax debt relief only applies to the amount owed on your spouse’s income. You’re not eligible for innocent spouse relief for taxes due on:
- Your income
- Business taxes
- Household employment taxes
- Individual Shared Responsibility payments
- Trust fund recovery penalties for employment taxes
Currently not collectible (CNC)
Your account goes into “currently not collectible” (CNC) status if the IRS concludes you can’t afford to make payments. This doesn’t make your tax debt disappear, but it does temporarily pause the collection process.
You’ll have to provide proof of your financial situation, so CNC status is only for people who truly cannot afford to make payments.
Interest and penalties will continue to accrue while your account is in CNC status, so it’s in your best interest to resume making payments as soon as possible.
You can call the IRS at 800-829-1040 to request CNC status or discuss your other options.
Alternatives to IRS tax debt relief programs
Professional tax relief companies
Professional tax relief companies can help you negotiate with the IRS to lower or eliminate your tax debt. However, these services often come with hefty fees, and you can apply for the same IRS tax debt relief programs on your own.
You can also seek assistance through the Taxpayer Advocate Service, an independent organization that operates within the IRS.
Tax relief scams are common, so be sure to research any companies you’re considering.
Pros | Cons |
---|---|
Receive guidance from a tax expert to navigate your options and make a plan Have a professional work with the IRS on your behalf | Fees can be expensive Scams are common Most services offered are things you can do yourself |
Personal loans
You may be able to use a personal loan to pay off your tax debt, but you’ll still have to pay off the personal loan. It’s often better to set up a payment plan with the IRS instead, especially considering personal loans show up on your credit report while tax debt doesn’t.
However, if you have a good credit score and can qualify for the best personal loan rates, this may save you money on interest and penalties in the long run.
Pros | Cons |
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Avoid further tax penalties Avoid liens from the IRS May qualify for a lower interest rate with good credit | May pay more in interest if you have bad or fair credit Some lenders charge origination fees Can impact your credit |
Credit card
You can use a credit card to pay off your tax debt, but high interest rates on credit cards could make this option unwise. If you use a 0% intro APR credit card, you’ll have to pay off the balance during the promotional period — typically 12 to 21 months — to avoid paying interest.
This option may be worth considering if you can’t pay off your tax debt in full right now, but you qualify for a 0% intro APR credit card and can pay it off before interest accrues.
Pros | Cons |
---|---|
Avoid paying interest on your tax debt Build credit as you make credit card payments | Standard credit cards may charge high rates 0% intro APR cards may charge high rates after the promo period ends May charge fees if you miss a payment |
401(k) loan
If you have a 401(k), you may be able to borrow money from it to pay off your tax debt. You usually won’t have to pay penalties or undergo a credit check, and you’ll generally have up to five years to pay off a 401(k) loan.
While this option can help you clear your tax debt, a 401(k) loan may also come with interest and taxes.
Pros | Cons |
---|---|
Repay over five years No credit checks or reporting to credit bureaus Doesn't require good credit | Investment gains will be lost on the money you borrow until it's repaid May have to repay loan faster if you lose or leave your job May incur taxes and penalties if you can't repay the loan |
Home equity loan
If you’re a homeowner, you may be able to take out a home equity loan to pay off your tax debt.
Taking out a loan on the equity in your home may help you pay off your tax debt and avoid IRS penalties, but you’ll also put your house on the line if you can’t repay it.
To qualify for a home equity loan, you’ll need to meet certain requirements, which typically include having a 620 minimum credit score and a maximum debt-to-income ratio of 43%.
Pros | Cons |
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May get a lower interest rate because the home is used as collateral Funds can be used for any purpose | Must meet requirements, which usually include having strong credit Risk of losing home if you can't pay off loan |
Beware of tax relief scams
Many companies claiming to offer tax relief or tax debt settlement are scams.
These companies will pressure you to pay steep fees upfront, guaranteeing to settle your debt for “pennies on the dollar” or claiming you need their services to negotiate with the IRS. They will take your money without delivering and may not even submit a request to the IRS at all.
You should always try to resolve your debt directly with the IRS first, whether you want to settle your debt or request a payment plan. If you would rather pay a tax relief company, avoid companies that charge large upfront fees or make claims that sound too good to be true.
You can report tax relief scams by submitting Form 14242 online or by mail, or by filing a report with the Federal Trade Commission (FTC).
Frequently asked questions
The IRS generally has 10 years to collect a tax debt, starting the date the tax owed was assessed. After that period, any remaining balance is expired.
However, some actions can suspend or add to this 10-year period, including requesting an installment agreement, filing for bankruptcy or applying for an offer in compromise.
No. IRS tax debts aren’t considered consumer debt when you file for Chapter 7 bankruptcy. This means if you file for Chapter 7 bankruptcy, your tax debt likely won’t be discharged.
The amount the IRS will settle for depends on how much you owe and how much you can be expected to pay within a reasonable period. This will depend on your income, expenses and assets.