What to do if you can't pay your taxes

Finding out you owe taxes you can't pay right now can feel scary. But the IRS is not a bill collector that shows up at your door the next day. You have options. The worst thing you can do is ignore the problem. Let's walk through what you can actually do.

File your return first, even if you can't pay

This is the most important step. File your tax return by the deadline, even if you cannot send a single dollar with it. Why? The IRS charges two separate penalties. One is for filing late. The other is for paying late. If you file on time but can't pay, you avoid the filing penalty. That alone can save you money.

If you need more time to file, you can request a free extension. This gives you six more months to file your paperwork. But it does not give you more time to pay. Interest and penalties still build up on what you owe.

Pay what you can right now

Even if you can't pay everything, pay something. Every dollar you pay reduces the balance that earns interest and late fees. If you have $50, send $50. It helps.

Set up a payment plan with the IRS

The IRS offers payment plans, also called installment agreements. This lets you pay your balance over time in monthly amounts. You can apply online at IRS.gov, by phone, or by mail. Many people qualify. There is a small setup fee, but it is much cheaper than ignoring the debt.

If you owe $50,000 or less in taxes, penalties, and interest combined, you may be able to set up a plan online in minutes. Payments can stretch out over several years depending on your situation.

Ask about Currently Not Collectible status

If you truly cannot pay anything right now, you may be able to ask the IRS to pause collection. This is called Currently Not Collectible status. It means the IRS agrees your finances are too tight to collect from you at this time. They may still send notices, and interest keeps building, but they stop aggressive collection actions while you are in this status.

You will need to show the IRS your income and expenses. They look at whether you have any money left after basic living costs.

Look into an Offer in Compromise

An Offer in Compromise lets you settle your tax debt for less than the full amount you owe. It sounds great, but it is not easy to get approved. The IRS only accepts these when they believe they cannot collect the full amount from you now or in the future.

You can use the free Offer in Compromise Pre-Qualifier tool on IRS.gov to see if you might qualify before applying. Be careful of companies that charge big fees and promise to settle your taxes for pennies. No one can guarantee that result.

Watch out for tax relief scams

When people are stressed about taxes, scammers show up fast. They promise to wipe out your tax debt for a fee. Many charge hundreds or thousands of dollars upfront and deliver nothing. Always go directly to IRS.gov or call the IRS at 1-800-829-1040 first. If you need professional help, look for a free or low-cost tax clinic. The IRS has a Low Income Taxpayer Clinic program that offers free or low-cost help to people who qualify.

State taxes work a bit differently

If you owe state taxes too, contact your state's tax agency directly. Most states have their own payment plan options. Do not ignore state tax bills either. Each state handles collections differently, but all of them want to hear from you.

The bottom line

Owing taxes is stressful, but it is not the end of the world. File on time. Pay what you can. Then reach out to the IRS about a plan. They deal with people in tough situations every single day. Taking one small step today is better than waiting and watching the balance grow.