The IRS will work with you if you cannot pay, but only if you contact them first
If you owe federal income taxes and cannot pay the full amount by the deadline, the IRS has programs that let you delay payment or spread it across months. You will not go to jail for owing taxes — the IRS pursues payment, not criminal charges, for people who simply cannot afford to pay. The key is to file your return on time even if you cannot pay, and then reach out to the IRS before they contact you.
Waiting for the IRS to send a bill makes everything harder and more expensive. Interest and penalties start the moment the tax is due, whether you contact them or not. But the IRS offers several formal arrangements — called payment plans or offers in compromise — that can reduce what you owe or give you time to pay without additional penalties beyond what already exists.
The process starts with a phone call or online account. You do not need a tax professional to set up a payment plan, though one can help if your situation is complex. Most homeowners in this position use either a short-term payment plan (if you can pay within 120 days) or an installment agreement (if you need longer).
Key Takeaways
- File your tax return on time even if you cannot pay; penalties for not filing are steeper than penalties for not paying.
- Contact the IRS before they contact you — call 1-800-829-1040 or set up a payment plan through IRS.gov to avoid additional collection costs.
- A short-term payment plan lets you pay in full within 120 days with minimal fees; an installment agreement spreads payments over months or years for a setup fee.
- An offer in compromise may reduce what you owe if you truly cannot pay the full amount, but the IRS rarely accepts these and requires detailed financial information.
- Property tax debt and state income tax work differently — contact your state tax authority and county assessor separately, as they have their own payment options.
Short-term payment plans for taxes due within 120 days
If you can pay your full tax bill within 120 days, a short-term payment plan is the fastest route. You request it directly from the IRS, either by phone at 1-800-829-1040 or through your IRS online account. There is no setup fee for a short-term plan, and you avoid the interest and penalties that come with a longer arrangement.
The IRS will give you a specific due date — usually 120 days from when you request the plan. Interest continues to accrue on the unpaid balance, but you are not charged an additional fee for the arrangement itself. This works best if you expect money within a few months: a tax refund from another year, a bonus, a settlement, or a sale of property.
You can request a short-term plan online through your IRS account, by phone, or by mail. The online route is fastest — you can set it up in minutes and see your payment schedule immediately. If you call, have your Social Security number, the tax year in question, and an estimate of what you can pay ready.
Installment agreements for longer payment periods
If you need more than 120 days to pay, you set up an installment agreement — a formal plan where you pay a fixed amount each month until the debt is settled. The IRS charges a setup fee (currently $31 to $225 depending on how you apply and your income level) and continues to charge interest on the unpaid balance, but you get a predictable monthly payment and protection from collection action while you are making payments on time.
There are two types of installment agreements. A may provide installment agreement is available if you owe $10,000 or less and can pay it off within three years. The setup fee is lower, and the IRS approves it automatically if you meet the income requirements. A standard installment agreement is for larger debts or longer payment periods; the IRS reviews your financial situation to make sure the monthly payment is reasonable.
You can request an installment agreement online, by phone, or by mail. Online is fastest — the IRS will tell you immediately whether you are approved and what your monthly payment will be. By phone, call 1-800-829-1040. If you apply by mail, send Form 9465 (Installment Agreement Request) with your tax return or separately to the address on your tax notice.
Once approved, you make monthly payments by check, electronic transfer, or credit card. Missing a payment can end the agreement and trigger collection action, so set up automatic payments if possible. The IRS will send you a notice with your payment schedule and due date each month.
Offers in compromise: when you truly cannot pay the full amount
An offer in compromise is a formal request to settle your tax debt for less than you owe. The IRS will consider it only if you can show that paying the full amount would create genuine financial hardship — meaning you cannot cover basic living expenses and the tax debt at the same time. The IRS accepts fewer than one in five offers, and the process takes months.
To pursue an offer, you submit Form 656 (Offer in Compromise) along with detailed financial statements showing your income, expenses, assets, and debts. The IRS uses this information to calculate what you can reasonably pay. If they think you have money available — even if it is tied up in a home or retirement account — they will reject the offer or counter with a higher amount.
The application fee is $225, though you may be able to request a fee waiver if your income is below a certain threshold. While your offer is pending, the IRS stops most collection action, but interest and penalties continue to accrue. If the IRS rejects your offer, you can appeal or request reconsideration, but this extends the timeline further.
An offer in compromise makes sense only if your financial situation is genuinely dire and unlikely to improve — for example, you are permanently disabled, retired on a fixed income, or facing bankruptcy. If you have any income growth expected or assets you could sell, the IRS will likely reject the offer. Consult a tax professional before pursuing this route; the paperwork is complex and mistakes can delay the process by months.
Currently not collectible status: when you have no income
If you have no income and no way to pay right now, you can request currently not collectible status. This temporarily pauses collection action — the IRS stops calling and sending notices — but interest and penalties continue to accrue. The IRS will revisit your case periodically (usually every two years) to see if your situation has changed.
Currently not collectible status is not forgiveness; you still owe the debt. If your financial situation improves, the IRS will resume collection efforts. The debt also does not disappear after a set time — the IRS can pursue it for ten years from the date of assessment, and that clock can restart under certain circumstances.
Request currently not collectible status by calling 1-800-829-1040 or submitting Form 433-F (Collection Information Statement for Wage Earners and Self-Employed Individuals). You will need to provide financial information showing you have no ability to pay. This is useful as a temporary measure while you are unemployed or facing a crisis, but it is not a long-term solution.
Property taxes and state income taxes work differently
Federal income tax and property tax are handled by different agencies with different rules. If you cannot pay property taxes on your home, contact your county assessor or tax collector's office — not the IRS. Most counties offer payment plans, tax deferral programs for seniors or disabled homeowners, and tax sale postponement if you are facing foreclosure.
State income tax debt is handled by your state's department of revenue or taxation. Each state has its own payment plan options, offer programs, and currently not collectible procedures. Some states are more flexible than the IRS; others are stricter. Look up your state's tax authority online or call the number on your state tax notice.
If you owe both federal and state taxes, you will need to contact each agency separately. A payment plan with the IRS does not cover state taxes, and vice versa. Prioritize based on what is most urgent — usually whichever agency is closest to taking collection action.
What happens if you ignore tax debt
If you do not respond to IRS notices, the agency will pursue collection through wage garnishment, bank levies, or a lien against your property. A tax lien is a legal claim on your assets; it does not force a sale, but it damages your credit and makes it nearly impossible to refinance a mortgage or take out a loan. The lien stays on your record for ten years after the debt is paid.
The IRS can also garnish your wages (take money directly from your paycheck) or levy your bank account (freeze and seize funds). These actions happen after the IRS has sent multiple notices and given you time to respond. If you receive a notice of intent to levy, you have about 30 days to contact the IRS and arrange a payment plan before the levy takes effect.
Criminal prosecution for tax evasion is rare and requires proof that you deliberately hid income or falsified documents. Simply owing taxes and not paying is not a crime. However, if you filed a false return or claimed deductions you knew were fraudulent, that is a different matter and can result in criminal charges.
Frequently Asked Questions
Can the IRS take my house if I owe taxes?
The IRS can place a lien on your house, which clouds the title and prevents you from selling or refinancing. A forced sale is rare and happens only after years of non-payment and failed collection efforts. If you set up a payment plan or offer in compromise, the IRS typically will not pursue a lien or will release one if you stay current on payments.
What if I cannot afford the monthly payment the IRS suggests?
Call the IRS at 1-800-829-1040 and explain your situation. They can lower the monthly payment, extend the payment period, or place you in currently not collectible status temporarily. The IRS wants to collect something; they will work with you if you communicate.
Do I still have to file my tax return if I cannot pay?
Yes. File on time even if you cannot pay. The penalty for not filing is much steeper than the penalty for not paying. If you need an extension, file Form 4868 by the original deadline (usually April 15) to get six more months to file.
Will a payment plan hurt my credit score?
A payment plan itself does not appear on your credit report. However, if the IRS places a lien on your property, that lien will show up and damage your credit. Setting up a payment plan before a lien is placed protects your credit.
Can I deduct tax debt payments from my income?
No. Tax payments are not deductible. However, if you are self-employed and owe estimated taxes, you can deduct the estimated tax payments you make during the year on your next return.