What to Do if You Can’t Pay Your Federal Tax Bill
- morgan03815
- Feb 21
- 3 min read
Understanding a Tax Bill vs. Tax Debt
Before diving into solutions, it’s important to understand the difference between a tax bill and a tax debt. A tax bill is the amount you owe for a specific tax year based on your income and deductions. If unpaid, it can turn into tax debt, which accrues penalties and interest over time. Addressing a tax bill promptly helps avoid it escalating into a more serious financial burden.
Immediate Steps to Take When You Can’t Pay Your Tax Bill
If you find yourself facing a tax bill you can’t afford, don’t panic, but don’t ignore it. The IRS offers several options to help taxpayers manage their payments. The repercussions of not dealing with an IRS debt can lead to wage garnishment or tax liens on property. Here are some suggestions about what you can do so that you don’t end up going down that road:
File Your Tax Return on Time
Even if you can’t pay in full, file your return by the deadline to avoid additional failure-to-file penalties. The penalties for not filing are often higher than the penalties for not paying.
Pay What You Can
Even a partial payment reduces interest and penalties. If you can’t pay in full, paying as much as possible upfront minimizes additional costs. If you have a tax bill from a previous year, do not ignore it. You may still be able to set up payment options. Make sure to consult a tax professional to assist you in how best to handle the situation based on your facts and circumstances.
Consider an Installment Plan
There are various options for an installment plan based on your facts and circumstances. If you are realistic in your request for an installment plan, the IRS will usually grant it with no questions. The easiest ways to request an installment plan are to apply at the same time as filing your return or to apply online on the IRS website. If you apply directly for an installment plan rather than avoiding it, you will not need to deal with the penalties and interest associated with failure to pay your tax bill.
Review Your Bill for Accuracy
If you receive a bill or notice from the IRS identifying a balance due, make sure you review it carefully. If there are differences, check your online account for how the IRS calculated your income that the tax is based on. If you find discrepancies, consult a tax professional to determine if adjustments are needed.
IRS Payment Plan Options
The IRS offers several structured payment solutions if you can’t pay your tax bill in full. These include short- and long-term payment plans, Offer in Compromise, and Requesting a Temporary Delay. You may qualify for one of them, and you can see if you are eligible to apply online at IRS.gov. In this article, we are going to focus on the payment plan options for both individuals and businesses:
Payment Plans for Individuals
Short-Term Payment Plan:
For tax bills under $100,000 (including penalties and interest)
Gives up to 180 days to pay
No setup fees
Interest and penalties continue to accrue
Long-Term Payment Plan (Installment Agreement):
For tax bills under $50,000 (including penalties and interest)
Monthly payments spread out over up to 72 months
Requires a setup fee (waived for low-income applicants)
Payment Plans for Businesses
Other than a full payment, the IRS offers a long-term payment plan (installment agreement) as an option for businesses. You can apply for this plan online as well.
For tax bills of $25,000 or less (including penalties and interest)
Monthly payments
Note: You can apply for a payment plan as an individual rather than a business if you are a sole proprietor or independent contractor.
Additional Ways to Handle Your Tax Bill
If an IRS payment plan isn’t the best fit, the IRS suggests that you consider these alternatives:
Use a credit card or personal loan: While these options may carry high interest rates, they can sometimes be more affordable than IRS penalties.
Home equity loan or line of credit: If applicable, borrowing against home equity could offer a lower interest rate than other borrowing options.
Adjust your withholding or estimated taxes: Prevent future tax bills by adjusting W-4 withholding (for employees) or estimated quarterly payments (for business owners and self-employed individuals).
How Overman Bookkeeping Can Help
Dealing with a tax bill can feel overwhelming, but you don’t have to face it alone. At Overman Bookkeeping, PC, we help small business owners and individuals navigate tax challenges with confidence. From reviewing your tax bill for accuracy to helping you set up a payment plan, we’re here to assist you year-round.
Contact us today for a consultation and let’s find the best solution for your situation!
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