The IRS has three main ways to handle what you owe: pay in full, set up a payment plan, or request a hardship program

You cannot make tax debt disappear, but you can stop it from growing and arrange terms that fit your situation. The IRS does not forgive tax debt the way some other debts can be forgiven — you still owe what you owe. What changes is how and when you pay it. If you owe less than $25,000, you can set up a payment plan online in minutes. If you owe more, or if you cannot afford any monthly payment right now, you will need to contact the IRS directly or work with a tax professional.

The path you take depends on three things: how much you owe, whether you can pay something monthly, and whether you are in financial hardship. Starting with the IRS Online Payment Agreement tool or calling the IRS at 1-800-829-1040 will point you toward the right option for your situation.

Key Takeaways

  • Short-term payment plans (120 days or less) are free; long-term plans cost $31 to $225 depending on how you set them up.
  • You can set up a payment plan online if you owe under $25,000 and have filed all required returns for the past six years.
  • If you cannot afford any monthly payment, you can request Currently Not Collectible status, which pauses collection while interest and penalties keep growing.
  • The IRS charges interest on unpaid tax at a rate that changes quarterly, plus a failure-to-pay penalty of 0.5% per month.
  • Hiring a tax professional or Enrolled Agent to represent you costs money upfront but can reduce what you owe through amended returns or other adjustments.

Setting up a payment plan online or by phone

If you owe $25,000 or less and have filed all required tax returns for the past six years, you can set up a payment plan through the IRS website without calling. Go to IRS.gov, search for "Online Payment Agreement," and follow the steps. You will need your Social Security number, date of birth, and the amount you owe. The system will show you monthly payment options and let you choose a due date that works for your paycheck schedule.

Short-term plans (you pay off the debt in 120 days or less) have no setup fee. Long-term plans cost $31 if you set them up online, or $225 if you call the IRS and a representative sets it up for you. Once your plan is in place, you pay monthly on the date you chose. Missing a payment can cancel the agreement, so set up automatic payments from your bank account if possible — the IRS will not charge you extra for this.

If you owe more than $25,000, or if you have not filed returns for some years, you cannot use the online tool. Call 1-800-829-1040 and speak with an IRS representative, or work with a tax professional who can negotiate on your behalf.

Requesting Currently Not Collectible status if you cannot pay right now

Currently Not Collectible (CNC) status tells the IRS you have no money to pay toward your tax debt at this moment. The IRS stops collection efforts — no wage garnishments, no bank levies, no liens — while you are in this status. However, interest and penalties keep growing, and the debt does not go away. The IRS can reopen collection efforts later if your financial situation improves.

To request CNC status, call 1-800-829-1040 and tell the representative you cannot pay. They will ask about your income, expenses, and assets. Be honest about what you earn and what you spend on housing, food, utilities, and other necessities. The IRS uses this information to decide whether you truly have no money left over. If they agree, they will place your account in CNC status for a set period, usually one to two years. After that period, the IRS may contact you again to see if your situation has changed.

CNC status is not a long-term solution — it is a pause. If you receive a tax refund while in CNC status, the IRS will take it to pay down your debt. If you get a raise or your situation improves, the IRS may resume collection efforts.

Understanding interest and penalties that keep growing

The amount you owe grows every day you do not pay. The IRS charges two things on top of your original tax bill: interest and penalties. Interest is a percentage of what you owe, set by law and changing every three months. As of early 2024, the interest rate is 8% per year, but this changes quarterly — check IRS.gov for the current rate. Penalties start at 0.5% of what you owe per month (up to 25% total) just for not paying on time, separate from interest.

If you filed your return late, you may also owe a failure-to-file penalty. These penalties add up fast. On a $10,000 tax debt, interest and penalties can add $200 to $300 per month if you do nothing. Setting up a payment plan stops the failure-to-pay penalty from growing further, but interest keeps running on whatever balance remains.

Some penalties can be removed if you have a good reason — for example, if you were seriously ill or dealing with a death in the family when the return was due. Call the IRS and ask about penalty relief, or have a tax professional request it on your behalf. This is worth doing even if you think the answer will be no, because the IRS removes penalties in some cases.

Working with a tax professional or Enrolled Agent

A tax professional or Enrolled Agent can represent you with the IRS and sometimes reduce what you owe. They cost money upfront — typically $500 to $3,000 depending on how complicated your situation is — but they can find mistakes on your return, file amended returns to correct them, or negotiate a lower payment plan. If the IRS made an error, a professional can catch it and get the amount reduced.

Enrolled Agents are federally authorized to represent taxpayers before the IRS and have passed a test on tax law. Certified Public Accountants (CPAs) and tax attorneys can also represent you. If you cannot afford a professional, the IRS has a Low Income Taxpayer Clinic program in most areas that offers free or low-cost help. Search for "Low Income Taxpayer Clinic" plus your state on IRS.gov to find one near you.

A professional is most useful if your debt comes from a mistake on your return, if you have complex income sources, or if you are facing wage garnishment or a lien. For a straightforward situation where you straightforward owe tax and can set up a payment plan, you may not need one.

Dealing with wage garnishment and bank levies

If you ignore the IRS, they can take money directly from your paycheck (wage garnishment) or from your bank account (levy) without going to court first. The IRS sends a Notice of Intent to Levy at least 30 days before they take action, so you have time to respond. If you receive this notice, contact the IRS when ready — do not wait.

Setting up a payment plan or requesting CNC status will stop a levy or garnishment. If a levy has already happened, the IRS will release it once you are in a payment plan or CNC status. Call 1-800-829-1040 and tell them you want to set up a plan or request hardship status. Have your account number (from the notice) ready.

If the garnishment is taking too much of your paycheck and you cannot cover basic expenses, you can request that the IRS reduce or release it. This is called a levy release. The IRS will ask about your income and necessary expenses. If they agree that the garnishment is causing hardship, they can lower it or stop it while you work out a payment plan.

Checking whether you can claim the debt as uncollectible

In rare cases, tax debt can be written off as uncollectible by the IRS, but this is not forgiveness — it is a temporary pause in collection efforts. The IRS will write off your debt if you are permanently disabled, elderly with no income, or in such severe financial hardship that collection is impossible. Even after write-off, the debt remains on your record and can be revived if your situation improves.

You cannot request write-off yourself — the IRS decides this based on your circumstances. If you believe you may have access to, explain your situation when you call 1-800-829-1040 or work with a tax professional. The IRS may place your account in CNC status first, and if your situation does not improve after several years, they may eventually write it off.

Bankruptcy is another route, but it is difficult. Tax debt can only be discharged in bankruptcy if the return was due more than three years ago, you filed it more than two years ago, and you owe tax (not penalties or interest). Most people cannot meet these conditions. Consult a bankruptcy attorney if you are considering this option.

Frequently Asked Questions

Can the IRS take my tax refund if I owe back taxes?

Yes. The IRS will automatically explore any refund you receive to your back tax debt. If you are owed a refund and you owe taxes from a prior year, the IRS keeps the refund. This happens without you having to do anything — it is automatic. If you need that refund money, you must resolve the back tax debt first or request a payment plan before filing.

What happens if I ignore the IRS and do not pay?

Interest and penalties keep growing, and the IRS can place a lien on your property, garnish your wages, or levy your bank account. A lien gives the IRS a legal claim to your assets, which can affect your ability to sell property or borrow money. Wage garnishment and levies can happen without a court order. The longer you wait, the more you owe and the more aggressive collection becomes.

Can I negotiate to pay less than I owe?

The IRS rarely reduces the amount of tax you owe, but they can remove penalties if you have a good reason for not paying on time. They can also accept an Offer in Compromise — a settlement for less than the full amount — but only if you can prove you cannot pay the full debt even with a long-term plan. These are difficult to get. A tax professional can determine whether you may have access to.

How long does the IRS have to collect from me?

The IRS has 10 years from the date they assessed your tax to collect it. After 10 years, they must stop collection efforts. However, certain actions — like filing bankruptcy or requesting an installment agreement — can extend this important date. If you are in CNC status, the 10-year period pauses while collection efforts are suspended.

What if I cannot afford the monthly payment the IRS suggests?

Tell the IRS your actual monthly expenses and income. If their suggested payment is too high, they can lower it, though this means you will pay for longer and owe more interest overall. If you cannot afford any payment at all, request Currently Not Collectible status. You can also revisit your plan if your income changes — the IRS will adjust it if you call and explain your new situation.