What to do if you can't pay your taxes

The failure-to-file penalty and the failure-to-pay penalty are separate, and the first is dramatically larger. Someone who files on time and pays nothing is in a far better position than someone who files late owing the same amount.

So file by the deadline regardless of what you can pay. Pay what you can alongside it, even if that is a small fraction, because penalties and interest are calculated on the unpaid balance and every dollar paid now reduces what accrues.

If you genuinely cannot complete the return in time, request an extension. But understand precisely what an extension is: more time to file, not more time to pay. The payment deadline does not move, and an extension without payment still accrues failure-to-pay penalties and interest.

Filing also unlocks everything else. An offer in compromise requires all returns to be filed. Payment plans require filing compliance. Ignoring the return closes off every route the IRS offers.

If you cannot afford to have the return prepared, free options exist — IRS Free File for federal returns below an income threshold, plus VITA, TCE and MilTax for lower incomes, older taxpayers and military families. Cost of preparation is never a reason not to file.

If you can clear the balance within a few months, request additional time to pay — up to 180 days.

There is no set-up fee for this arrangement, which is what makes it the cheapest option for anyone whose problem is timing rather than affordability.

Interest and any applicable penalties continue to accrue until the liability is paid in full. The absence of a fee does not mean the debt stops growing.

Apply through the IRS online payment agreement tool. Most people are approved immediately without speaking to anyone.

This is the right choice if you are waiting on a bonus, a sale, a tax refund from another year, or simply need to spread the payment across two or three pay cycles.

If you need longer than 180 days, an installment agreement lets you pay monthly over an extended period.

Individuals owing $50,000 or less — including penalties and interest — can generally set up a simple payment plan online without financial disclosure.

A guaranteed installment agreement applies where the tax owed is $10,000 or less, excluding interest and penalties, provided you have filed and paid on time for the previous five years and agree to stay compliant. The IRS must accept these.

Businesses have their own thresholds: $25,000 or less where trust fund taxes are involved, and $50,000 or less where they are not.

There is a user fee to set up a plan. If you are a low-income taxpayer that fee is reduced, and in some circumstances waived entirely or reimbursed. Ask — this is not applied automatically in every case.

Set the monthly figure at something you will actually pay every month. Defaulting on an agreement is worse than requesting a realistic one at the outset, because reinstating it costs another fee and the IRS becomes less flexible.

An offer in compromise resolves your liability by paying an agreed reduced amount — genuinely less than you owe.

It is not easy to obtain and it is not for people who simply find the bill inconvenient. The IRS assesses your income, expenses, asset equity and ability to pay, and generally accepts only where it doubts it could collect the full amount within the collection period.

You must have filed all required returns and received a bill for at least one tax debt before applying. Applications from non-filers are returned.

The IRS publishes a pre-qualifier tool that gives an honest indication of whether an offer is realistic before you spend the application fee and the considerable effort involved.

This is the area where predatory 'tax relief' advertising concentrates — firms promising to settle debts for 'pennies on the dollar' for a large up-front fee. The application is one you can make yourself, the criteria are published, and no firm can obtain an outcome the criteria do not support.

If you want representation, a genuinely low-income taxpayer can often get free help from a Low Income Taxpayer Clinic rather than paying a commercial firm.

If paying anything at all would prevent you meeting basic living expenses, you can ask the IRS to delay collection by placing the account in currently not collectible status.

While it applies, active collection stops. No levies, no garnishment.

But the debt does not go away, and interest and penalties continue to accrue the whole time. This is a pause, not a resolution, and the balance you eventually face will be larger.

The IRS reviews the status periodically and will restart collection if your circumstances improve.

A federal tax lien may still be filed against you even in this status, which affects credit and the ability to sell property.

It is the right answer for genuine hardship and the wrong answer for anyone who could manage a modest installment plan, because time spent in this status is expensive.

Do not ignore IRS notices. Each one has a deadline and a set of rights attached to it, and those rights expire. The IRS is markedly more flexible before enforcement than after.

Ignoring them long enough leads somewhere specific. A federal tax lien is a legal claim against your property, attaching to what you own now and what you acquire later; it makes selling or refinancing a home difficult and is visible to lenders. A levy is a step further — actually taking the money, whether from a bank account, wages, or a future tax refund.

Wage garnishment for federal tax debt is not like other creditors. The IRS does not need a court judgment, and the amount left to you is set by a statutory exempt figure rather than a percentage of your pay, which for many people is a very small sum.

The important point is that every one of these is preventable by responding earlier. A payment plan requested before enforcement is routine; unwinding a levy afterwards is not.

Penalty abatement is real and underused. First-time penalty abatement can remove failure-to-file and failure-to-pay penalties for taxpayers with a clean prior compliance record, and reasonable cause relief exists for serious illness, disaster, or records destroyed. You have to ask; it is not applied automatically.

Interest is much harder to remove than penalties, and is generally only abated where the IRS caused the delay.

If you have tried the normal channels and the problem is not being resolved, or you are facing genuine hardship, the Taxpayer Advocate Service is an independent organisation inside the IRS that helps taxpayers whose problems are not being fixed. Their help is free.

State tax debts are entirely separate. A federal agreement does nothing about what you owe your state, which runs its own collection process and its own payment plans.

Beware anyone who telephones demanding immediate payment by gift card, wire transfer or cryptocurrency. The IRS initiates contact by post, and demands of that kind are always fraudulent.