What If You Can't Pay the Taxes You Owe?

Don't panic—you have many options

Worried couple seated on sofa with paperwork and a phone

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Most taxpayers receive a refund, so it can be a big shock to find out that you actually owe taxes when you file your return. You might not have anything saved up to pay those taxes if you haven't anticipated owing a balance. The good news is that the Internal Revenue Service (IRS) is willing to work with you, and it offers many options. The agency might offer you a payment plan, reduce your tax liability, or allow you additional time to pay.

But don't wait to take action because the consequences of not paying and doing nothing about it can be expensive and damaging.

Key Takeaways

  • Reach out right away to come up with a solution if you owe the IRS money that you can't pay.
  • The IRS offers a few types of payment plan options.
  • The IRS might even settle for less than you owe in some cases.
  • Not paying and doing nothing about it will incur penalties and accumulating interest.

IRS Penalties for Failure To Pay Taxes

The IRS doesn't mess around when it comes to making sure your taxes are paid up. It will charge you interest on any unpaid tax balance. The interest rate for any unpaid taxes for the calendar quarter beginning Jan. 1, 2023 is 7% per year and it compounds daily.

The IRS can impose two separate penalties in addition to interest charges:

  • A late filing penalty if you don't file your tax return by the deadline
  • A late payment penalty if you don't pay your taxes on time

The penalty for filing late starts out at 5% of your unpaid tax balance per month, up to a maximum of 25% of your unpaid tax bill. You'll face a minimum penalty of either $450 or 100% of the tax required, whichever amount is smaller, if you wait more than 60 days to file after the due date in 2023.


File your taxes as early as possible if you can. You have until at least Tax Day to pay your taxes or get a plan set up even if you file in January. Tax Day falls on April 18 in 2023.

The penalty for paying late is less than the one for filing late. You’ll be charged 0.5% per month, up to a maximum of 25% of your unpaid tax bill.

You'll have ten days to pay before the penalty rate increases to 1% per month if you wait too long and end up getting a Notice of Intent to Levy in the mail. This means the IRS is getting ready to take possession of assets such as your wages or bank account. But the penalty rate is cut in half to 0.25% per month if you file on time and get a payment plan set up before April 15.

IRS Installment Agreements

The IRS makes it easy to set up a payment plan. You may be able to do it online depending on how much you owe. The agency offers two types of payment plan options.


You'll still have to pay penalties and interest if you set up a payment plan, so choose the shortest option you can afford. You must also file all your tax returns before and during any extended payment agreement. 

Short-Term Payment Plan

Choose the short-term payment plan if you think you can come up with the remaining balance within the next 180 days. There's no fee, and you can make payments as you're able.

Long-Term Payment Plans

Choose a long-term payment plan if you think it will take you longer than three months to pay off what you owe. You agree to make monthly payments with this plan, which you can even set up on autopay if you choose. Automatic payments are recommended so you don't miss a payment.

There's a fee to set up a long-term installment plan that ranges from from $31 to $225. You’ll pay a lower fee if you apply for the plan online and if you choose to make automatic payments. You may qualify for a reduced or waived setup fee if you earn a low income.

The length of time you have to pay your taxes on a long-term plan depends on the amount you owe.

  • Guaranteed Installment Agreement: There's no minimum payment required as long as you agree to pay what you owe within 36 months, you owe less than $10,000 to the IRS, and you sign up for a long-term payment plan.
  • Streamlined Installment Agreement: You can set up a long-term, streamlined installment agreement (SLIA) if you owe $10,000 or more. This will give you a maximum of 72 months to pay your balance. This agreement may come with a minimum payment amount.
  • Non-streamlined Installment Agreement: You'll have until the collection statute of limitations expires to pay your taxes if you set up the full-pay non-streamlined installment agreement (NSIA). That means you typically have up to 120 months to pay your tax bill unless the statute is extended. You and someone from the IRS will determine your monthly payment amount or how you would pay with assets.

Just remember that the longer you take to pay what you owe, the more you’ll pay in interest.

Making an Offer in Compromise

You might not be able to pay off your tax bill even with a long-term installment plan. You can propose an amount to settle with the IRS through a formal process called "offer in compromise" in this case.

The IRS even offers a pre-qualification tool on its website so you can see if this might be an option for you.

The Cost of an Offer in Compromise

Keep in mind you can't just propose settling your bill for $5 with the IRS. It doesn’t generally accept lowball offers. The agency will calculate how much it could potentially collect from you if it seized your assets and even your future income up to a point, and it won't accept an offer below this amount. This could still be quite a substantial number if you have a lot of assets and a high income, but it will probably be less if you don't have a lot of assets.

The cost to apply for an offer in compromise is $205, but this can be waived if you have a low income. You can choose to make a lump-sum payment or pay off the agreed-upon amount in monthly installments for up to 24 months.

Paying Partial Taxes

It’s a good idea to make whatever payment you can make now if you don't owe a huge bill and only need a very short amount of time to pay, such as until your next paycheck. This is called a partial payment, and it's a good faith sign to the IRS that you're not ignoring the situation. You'll still accrue the same interest charges and penalties, but they won't be that much if you truly only need a short time to pay.


Contact the IRS and ask for a temporary delay of collection if paying even a small amount would cause undue hardship. You'll have to provide financial details, and interest and penalties will still accrue, but the IRS will pause any collection efforts while you're unable to pay.

Borrowing Money To Pay Your Taxes

Choosing a payment option with the IRS is generally the best option, but not always. It may be cheaper to borrow money to pay your tax balance in full if you have lower-interest forms of borrowing available to you. The IRS’ penalty interest rate can be high and the penalty amount is 0.5% or 1% per month, so the costs of not paying can add up quickly.

You might have access to a credit card or personal loan with cheaper rates if you have good credit. Another option is to use a 0% intro APR credit card, but only if you're sure you'd be able to pay it off before the interest charges kick in.

Home equity loans and home equity lines of credit are common and relatively cheap options, but keep in mind that it's generally best to avoid using these for unsecured debts like tax debt. You could lose your home if you default.

The Bottom Line

Time is of the essence when it comes to tax debt. Reach out to the IRS to make a partial payment if you still don't have the money by Tax Day. Get on an installment plan, or set up an offer in compromise immediately.

The sooner you do these things, the fewer consequences there will be and the sooner you can remove this source of stress and worry from your life.

Frequently Asked Questions (FAQs)

How do I pay quarterly estimated taxes?

Use Form 1040-ES to make your estimated quarterly tax payments. It includes worksheets to help you figure out how much you'll have to send in each quarter, as well as payment vouchers and information about how to pay your estimated quarterly taxes online.

What should I do if I can’t pay my state taxes?

Reach out to your state's tax department as soon as possible to find out your options if you can't pay your state taxes. Depending on the state you live in, you may be able to set up an installment plan or make an offer to settle your tax bill for less than you owe. Each state's procedures and options can be slightly different.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "Interest Rates Increase for the First Quarter of 2023."

  2. IRS. “Topic No. 653 IRS Notices and Bills, Penalties, and Interest Charges.”

  3. IRS. "IRS Sets January 23 as Official Start to 2023 Tax Filing Season; More Help Available for Taxpayers This Year."

  4. IRS. “Additional Information on Payment Plans.”

  5. IRS. "5.14.5 Streamlined, Guaranteed and In-Business Trust Fund Express Installment Agreements."

  6. IRS. “Topic No. 204 Offers in Compromise.”

  7. IRS. “Form 656 Booklet: Offer in Compromise.”

  8. IRS. “2022 Form 1040-ES.”

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