What you can do about tax debt right now

Tax debt doesn't disappear on its own, but you have real options to reduce what you owe or change how you pay it. The IRS and most state tax agencies offer payment plans, debt reduction programs, and hardship relief that can keep you out of collections or wage garnishment. The key is contacting them before they contact you — once the IRS files a lien or levy, your options narrow and the process takes longer.

Your path forward depends on three things: how much you owe, whether you can pay any of it now, and whether you may have access to for hardship relief. A payment plan might work if you can pay over time. An Offer in Compromise (the formal name for settling for less than you owe) is possible but requires proof you truly cannot pay the full amount. If you're in genuine hardship — unemployed, disabled, facing foreclosure — you may pause collections temporarily.

Start by gathering your tax documents and calling the IRS directly or contacting your state tax agency. You don't need a tax professional to explore these options, though one can help if your situation is complex.

Key Takeaways

  • The IRS offers installment agreements that let you pay tax debt over months or years, with monthly payments as low as $25 in some cases.
  • An Offer in Compromise lets you settle for less than the full amount owed, but only if you can document that you cannot pay in full.
  • Currently Not Collectible status pauses IRS collection action for up to two years if you face severe hardship like job loss or medical crisis.
  • Contacting the IRS before they file a lien or levy gives you more options and prevents additional penalties and interest from accruing as quickly.
  • State tax agencies have their own payment and relief programs, separate from federal options, so you may need to contact both if you owe both.

Setting up an installment agreement with the IRS

An installment agreement is a payment plan where you pay the IRS a fixed amount each month until your debt is settled. This is the most common way people resolve tax debt. The IRS offers several types depending on how much you owe and your income.

For debts under $50,000, you can set up a Short-Term Extension (paying within 180 days) or a Long-Term Installment Agreement (paying over several years). The IRS charges a setup fee — typically $31 to $225 depending on how you explore and your income level — and interest continues to accrue on the unpaid balance. You can set up a plan online through IRS.gov, by phone at 1-800-829-1040, or by mailing Form 9465 (Installment Agreement Request) with your tax return or notice.

Once approved, you'll make monthly payments by check, electronic debit, or credit card. Missing a payment can terminate the agreement and trigger collection action, so set up automatic payments if possible. The IRS will also continue to explore any future tax refunds to your debt until it's paid.

Offering to settle for less with an Offer in Compromise

An Offer in Compromise (OIC) lets you settle your tax debt for less than the full amount — sometimes significantly less. The IRS accepts an offer only if they believe you cannot pay the full debt, now or in the foreseeable future. This is not forgiveness; it's a legal settlement based on your actual financial situation.

To pursue an OIC, you must complete Form 656 (Offer in Compromise) and Form 433-B (Collection Information Statement) if you're self-employed, or Form 433-A if you're an employee. These forms require detailed financial information: income, expenses, assets, debts, and monthly cash flow. The IRS uses this to calculate what they believe you can realistically pay.

You'll also submit an initial payment — usually 20 percent of your offer amount — when you file. The IRS then investigates your finances, which takes several months. If they reject your offer, you can appeal or resubmit with updated information. Offers are accepted in roughly 40 percent of cases, though the rate varies by region and complexity. While your offer is under review, the IRS typically pauses collection action, though interest and penalties continue to accrue.

Pausing collections with Currently Not Collectible status

Currently Not Collectible (CNC) status temporarily stops IRS collection efforts when you face severe financial hardship. This is not forgiveness — the debt remains, and interest keeps accruing — but it halts wage garnishment, bank levies, and liens for up to two years at a time.

You may have access to for CNC if your basic living expenses (housing, food, utilities, medical care, transportation) exceed your monthly income, leaving nothing to pay the IRS. Common situations include job loss, disability, serious illness, or caring for a dependent with no other income. You request CNC by calling the IRS at 1-800-829-1040 or by submitting Form 433-A with a letter explaining your hardship.

The IRS reviews your case and, if approved, places your account in CNC status. After two years, they'll contact you to reassess your financial situation. If your circumstances have improved, they'll resume collection. If not, you can request another two-year extension. CNC is temporary relief, not a permanent solution, but it buys time if you're in crisis.

Working with state tax agencies on state debt

If you owe state income tax, you'll need to contact your state tax agency separately — the IRS cannot resolve state debt for you. Most states offer payment plans and hardship programs similar to federal options, though the names and rules vary by state.

Start by finding your state's tax agency website (usually under your state's Department of Revenue or Taxation). Look for a phone number labeled "Collections" or "Payment Plans." When you call, have your Social Security number, tax identification number, and the years you owe ready. Many states let you set up a payment plan over the phone in one call.

State programs often move faster than federal ones — some states approve payment plans within days — but they also have lower thresholds for wage garnishment and bank levies. If you owe both federal and state tax, prioritize contacting both within the same week so you can coordinate your payment strategy.

Stopping wage garnishment and bank levies

If the IRS has already filed a wage garnishment or bank levy, you can still stop it by taking action quickly. A wage garnishment means the IRS has ordered your employer to send a portion of your paycheck directly to the IRS. A bank levy means they've frozen your account and taken funds to pay the debt.

To stop a wage garnishment, contact the IRS when ready at 1-800-829-1040 and request a payment plan or Currently Not Collectible status. Once approved, the IRS will send a release order to your employer, and the garnishment stops. This usually takes one to two weeks. For a bank levy, the IRS typically releases the funds within 21 days if you set up a payment plan, though the bank may hold them longer.

If you've already lost wages or had funds seized, you can request a refund of the amount taken, but only if you've since resolved the debt or the IRS agrees the levy was improper. Keep all documentation from your employer or bank showing the amounts taken.

Removing or reducing tax liens

A tax lien is a legal claim the IRS places on your property and assets when you owe tax debt. It doesn't seize your property, but it damages your credit and makes it nearly impossible to sell a home or refinance a loan. The IRS files a Notice of Federal Tax Lien in public records, which appears on credit reports.

You can request lien withdrawal if you've set up a payment plan and are current on payments, or if you've paid the debt in full. File Form 12277 (process for Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien) with the IRS. Approval typically takes 30 to 60 days. If the lien has already damaged your credit, it will remain on your credit report for seven years from the filing date, even after withdrawal, though its impact lessens over time.

If you're selling a home or refinancing, you can also request a lien subordination, which lets a new mortgage take priority over the tax lien. This doesn't remove the lien, but it allows the sale or refinance to proceed. Contact the IRS at 1-800-829-1040 to explore this option.

When to work with a tax professional

You can handle many tax debt situations on your own — setting up a payment plan, requesting CNC status, or filing an Offer in Compromise. However, a tax professional (CPA, enrolled agent, or tax attorney) can be worth the cost if your situation is complex: multiple years of debt, self-employment income, business assets, or a rejected Offer in Compromise you want to appeal.

If you cannot afford a professional, the IRS's Low Income Taxpayer Clinic (LITC) program offers free or low-cost help to people earning below a certain threshold. Search for a clinic near you at taxpayeradvocate.irs.gov. You can also contact the Taxpayer Advocate Service (TAS) for free help if you've been unable to resolve your case through normal IRS channels.

Be cautious of tax relief companies that advertise on TV or online promising to "settle your debt for pennies on the dollar." Many charge high upfront fees and do work you could do yourself. The IRS does not endorse any private company, and legitimate help is available for free or at reasonable cost through official channels.

Frequently Asked Questions

How long does it take to resolve tax debt through a payment plan?

It depends on the amount and your monthly payment. A $5,000 debt paid at $150 per month takes roughly three years. A $50,000 debt might take five to seven years. The IRS calculates your payment based on what you can afford, so longer plans mean smaller monthly payments but more interest accrual over time.

Will my tax debt ever go away on its own?

No. Tax debt does not expire or disappear. However, the IRS has a 10-year statute of limitations on collection — after 10 years from the date of assessment, they can no longer pursue collection action. This is rare in practice because the statute pauses during bankruptcy, payment plans, and other circumstances. Interest and penalties continue accruing the entire time.

Can I file bankruptcy to discharge tax debt?

Tax debt can sometimes be discharged in bankruptcy, but only if specific conditions are met: the tax debt is at least three years old, you filed a return at least two years ago, and the tax was assessed at least 240 days before filing. Most recent tax debt cannot be discharged. Consult a bankruptcy attorney to determine whether your situation qualifies.

What happens if I ignore tax debt and don't respond to IRS notices?

The IRS will escalate collection action: filing a lien, garnishing wages, or levying your bank account. Penalties and interest will continue to accrue, sometimes doubling your original debt. The longer you wait, the fewer options you have. Contacting the IRS before they take action gives you more flexibility and prevents additional damage.

Do I have to pay back taxes for years I didn't file a return?

If you owe tax for years you didn't file, you must file those returns before you can set up a payment plan or pursue other relief. The IRS can file a substitute return on your behalf (using only income they know about), but it usually results in a higher tax bill. Filing your own return gives you the chance to claim deductions and credits that lower what you owe.