Debt Consolidation
How Does LendingTree Get Paid?
LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How Does LendingTree Get Paid?

LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

Tax Debt Relief: What to Do if You Can’t Pay Your Taxes

Updated on:
Content was accurate at the time of publication.

Tax debt relief is a form of assistance for people who are unable to pay their back taxes, or taxes that weren’t completely paid the year they were due. If you find yourself asking, “What if I can’t pay my taxes,” you can turn to the Internal Revenue Service (IRS) for help or to third-party companies that specialize in tax debt relief.

What is tax debt relief?

Tax debt relief is an umbrella term for programs that help you pay your tax debt, such as IRS debt repayment plans and services from third-party tax relief companies. Tax debt relief programs help you avoid the fees that you’ll owe if you don’t pay by the deadline.

There are two major costs associated with not paying your taxes on time: interest and penalties. If you decide to create a repayment plan through the IRS, you could owe additional fees. You can see details on those fees, such as failure-to-pay penalties, on the IRS website.

 Note: Even when you enter a payment plan with the IRS, you will still have to pay accruing interest on your taxes.

Tax debt relief options

Depending on your financial position, you may or may not qualify for certain IRS tax debt relief options. Typically, these plans weigh factors such as your income, your expenses and how much you owe in taxes.

IRS payment plans

An IRS payment plan, or installment agreement, works similarly to a personal loan: you’ll pay a small chunk of your total balance over time, plus interest. There are two types of installment agreements with the IRS: short and long term.

Short-term and long-term installment agreements

An IRS payment plan allows you to pay your tax debt over a set amount of time in manageable monthly payments.

  • Short-term payment plans give you the chance to pay back your tax debt within 180 days. When you add fees and interest to your total tax debt balance, you can owe no more than $100,000 to qualify for the short-term payment plan.
  • Long-term payment plans last more than 180 days, sometimes as long as 72 months (six years). You must owe $50,000 or less when combining your total balance, interest and fees in order to qualify for this installment plan.

Entering a payment plan can help you avoid wage garnishments, levies and other collection actions. Although interest and penalties will accrue until the balance is paid, your failure-to-pay penalty will be cut in half, from 0.5% monthly to 0.25% monthly.

Payment planRepayment periodMaximum amount you can owe to qualifyApplicable fees
Short-term plan180 days or lessLess than $100,000 in combined balance, fees and interest
  • No setup fee
Long-term plan (with autopay)Up to 72 monthsLess than $50,000 in combined balance, fees and interest
  • $31 setup fee
  • Setup fees may be waived for low-income filers
Long-term plan (without autopay)Up to 72 monthsLess than $50,000 in combined balance, fees and interest
  • $130 setup fee
  • Setup fees may be lowered to $43 for low-income filers (may be reimbursed)

Note: Additional fees may apply if paying by card

Innocent spouse relief

If you filed a joint tax return with your spouse and your spouse made an error that underrepresented how much you owe in taxes, you may be off the hook for your spouse’s mistake.

To qualify for this form of relief, you’ll need to meet the following criteria:

  • You and your spouse filed a joint tax return
  • Your tax filing included errors that underestimated the amount of taxes you owe (incorrect income, deductions, credits or value of assets)
  • You were unaware of the errors
  • You live in a community property state

Keep in mind that this tax relief can only be applied to your spouse’s income. You can’t claim tax relief from the following types of taxes:

  • Your own income
  • Household employment taxes
  • Individual Shared Responsibility payments
  • Business taxes
  • Trust fund recovery penalties for employment taxes

Offer in compromise (OIC)

Another form of federal tax debt relief is the offer in compromise (OIC), which allows you to settle your tax debt for less than the full amount owed. If the IRS agrees to your offer, then you’re in luck, since the majority of OICs are rejected. If your offer is rejected, you may file an appeal within 30 days.

The IRS grants an offer in compromise based on the following factors:

  • Your ability to pay
  • Your income
  • Your expenses
  • Your asset equity

See if you might be eligible for an offer in compromise by using this IRS tool.

How to submit an offer in compromise

Some may hesitate to submit an OIC, as the application requires a nonrefundable $205 fee and 20% of the total offer amount, though certain low-income individuals may have these costs waived.

Your application should include:

  • Form 656 (offer in compromise)
  • Form 433-A (collection information statement)
  • Application fee, unless you meet low-income certification
  • Initial offer payment, unless you meet low-income certification

While your offer is being evaluated, other collection activities are suspended and a federal tax lien may be filed.

 Note: Although most OIC cases are decided within six to eight months, it may take the IRS up to two years to accept or reject your OIC request.

Currently not collectible (CNC)

Currently not collectible doesn’t mean that your tax debt goes away — rather, the government has determined that you can’t pay your debts at this time.

If your account is in currently-not-collectible status, the IRS generally won’t place a lien on your assets in an attempt to collect from you. While you’re not paying your tax debt, it accrues interest and penalties all the same. Plus, any future tax returns will be put toward your tax debt until it’s paid off.

To find out if you qualify for currently-not-collectible status, you can contact the IRS at 800-829-1040.

Can tax relief companies help?

Tax debt relief companies are essentially the intermediaries between you and the IRS. They may promise to lower or even eliminate your tax bill, but proceed with caution. These companies typically charge a fee for a service that you could do yourself.

At the end of the day, tax debt relief companies often utilize the same IRS financial hardship programs that you can apply for yourself. Plus, there are plenty of scammers who operate under the guise of offering tax relief that could be out for your money and personal information.

However, there are reputable tax relief companies that may be able to help with your tax situation. If you don’t have the time, energy or know-how to commit to submitting an offer in compromise, it could be worth the effort to find an organization you can trust.

3 signs of a tax relief scam

Falling victim to a scam puts your personal data at risk. Before agreeing to work with a tax relief company, it’s important to watch for signs that you’re being scammed.

The Federal Trade Commission (FTC) highlights a few red flags to look for. Beware of any company that:

  • Makes assurances that you will get relief from tax liabilities
  • Lies about how long it will take for the debt relief request application to be processed
  • Leaves out relevant information on financial statements submitted to the IRS

If you suspect a debt relief scam, you can report it to the FTC online or by calling 1-877-FTC-HELP.

Alternatives to tax debt relief

Filing for relief through the IRS or working with a tax debt relief company aren’t your only two options if you owe back taxes. Instead, you may consider other avenues like taking out a personal loan, using a credit card, home equity loan or borrowing from your 401(k).

  Personal loans

In most cases, you shouldn’t take out a personal loan to pay off tax debt. But for borrowers with good credit and a lot of tax debt, this could be a good option for avoiding the fees that come with unpaid taxes.

The IRS updates interest rates on a quarterly basis based on the status of the market, so a personal loan to settle tax debt may or may not be a good deal, depending on when you apply for one. Keep in mind that a personal loan comes with a fixed interest rate and a fixed monthly payment, unlike a credit card.

 Paying your tax debt with a credit card

You could choose to put your tax debt on a credit card, and you may even be able to avoid paying interest if you qualify for a card with a 0% introductory APR period. This is one of the most cost effective ways to save money when paying your taxes, as you won’t have to pay any interest during that intro period.

You may still have to pay a processing fee and an annual fee when you take out a credit card, so you’ll want to compare that to the interest rates of a personal loan or an IRS payment plan.

Consumers with lower credit scores may not qualify for a credit card with a no-interest introductory period. If you choose this method for paying tax debt, be sure that you’re able to pay off the balance of your card before the end of the promotional period, or you’ll be stuck paying interest on the balance.


If you find yourself under an IRS levy for not paying your taxes — meaning the government is garnishing your wages or seizing your property to repay your taxes — you are eligible to use money from your 401(k) to repay your taxes without paying a 10% early withdrawal tax.

In most cases, if you take money out of your 401(k) before you turn 59 ½ , you may be subject to this tax penalty from the IRS. However, you may have to repay your 401(k), plus interest, within five years if you choose to go this route.

 Home equity loan

If you own a home, you may be able to capitalize on the equity you’ve built up over the years with a home equity loan.

Home equity loans — also referred to as second mortgages — allow you to borrow against your home’s equity, using your home as collateral. Borrowers are commonly able to borrow up to 85% of their home’s value.

Like personal loans, home equity loans typically come with fixed interest rates and monthly payments. Keep in mind that you could lose your home if you are unable to keep up with your payments.

The IRS offers a plan known as an offer in compromise (OIC) to those who are unable to repay the entirety of their back taxes. If your OIC request is accepted by the IRS, you could settle your tax debt for less than you owe.


However, qualifying for an offer in compromise is difficult, so it’s best not to place all your eggs in one basket. The IRS judges applicants based on ability to pay, income, expenses and asset equity. The IRS will only accept your OIC request if they believe that the offered sum is the largest amount they’ll be able to collect from you in a reasonable time period.

Whether you qualify for tax debt relief depends on which program you are applying with. However, several IRS programs will waive or lower setup fees if you have a low income.


If you apply for a short- or long-term installment plan with the IRS to pay off your tax debt, your debt will need to fall under a certain dollar amount:

  • Short-term plans: $100,000 or less
  • Long-term plans: $50,000 or less

You are required to file your taxes every year. However, according to IRS policy, the agency will generally not go back more than six years for delinquent tax filings.