The IRS offers several options to help taxpayers, who can’t pay their tax bill, meet their obligations. Taxpayers struggling to pay their taxes may consider these options:
- Payment plans – Taxpayers who owe but cannot pay in full when they file don’t have to wait for a tax bill to set up a payment plan. Most taxpayers who owe can set up a payment plan through the Online Payment Agreement tool as well as by using the IRS text/voice bots. There’s no paperwork and no need to call, write or visit the IRS. Setup fees may apply for some types of plans.
- Offer in Compromise – An Offer in Compromise allows qualifying taxpayers to settle their tax liabilities for less than the total amount they owe. To help determine eligibility, taxpayers can use the Offer in Compromise Pre-Qualifier tool. To help them prepare their own valid Offers in Compromise, the IRS created an OIC video playlist – also available in Spanish and Simplified Chinese – that walks them through the necessary paperwork.
- Temporarily delaying collection – Taxpayers can contact the IRS to request a temporary delay of the collection process. If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves. Penalties and interest continue to accrue until the taxpayer pays the full amount.
What happens if taxpayers don’t make arrangements to pay their taxes?
The IRS may file a federal tax lien. A federal tax lien is the government’s legal claim against a taxpayer’s property when they neglect or fail to pay a tax debt. The lien protects the government’s interest in all taxpayer’s property, including real estate, personal property and financial assets.
A federal tax lien occurs after the IRS:
- Assesses their tax liability;
- Sends them a bill that explains how much they owe (Notice and Demand for Payment); and
- The taxpayer neglects or refuses to fully pay the debt in time.
When conditions are in the best interest of both the government and the taxpayer, other options exist for reducing the impact of a lien.
- Notice of Federal Tax Lien. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to a taxpayer’s property.
- Levy. A levy is a legal seizure of property, or rights to property, to satisfy a tax debt. When property is levied, it will be sold to help pay the taxpayers tax debt. If wages or bank accounts are seized, the money will be applied to the taxpayer’s tax debt.
- Notice of Intent to Levy and Notice of Right to a Hearing. This notice is typically one of the actions the IRS must take before a levy can be issued. Generally, before property is seized, the IRS will send a taxpayer this type of notice. If they don’t pay their overdue taxes, make other arrangements to satisfy the tax debt or request a hearing within 30 days of the date of this notice, the IRS may seize the taxpayer’s property.
- Summons. A summons legally compels a taxpayer or a third party, to meet with the IRS and provide information, documents or testimony for an IRS investigation.
- Passport actions. The Department of State will not issue or renew a passport to anyone who has been certified by the IRS as having a seriously delinquent tax debt. Seriously delinquent tax debts are legally enforceable, unpaid federal tax debt (including assessed penalties and interest) totaling more than $59,000 (adjusted yearly for inflation). They may also revoke a passport previously issued to these taxpayers. For information on passports, refer to Revocation or Denial of Passport in Cases of Certain Unpaid Taxes.