For a large majority of taxpayers, owing the IRS is not something they do willingly. Owing taxes can take an emotional and physical toll on a person and their family. So what if you can’t pay your tax bill in full when it comes due? What are your options?
The IRS does give taxpayers options when they cannot afford to pay their bill in full with a lump sum payment. The most common option is an Installment Agreement. This option allows you to make monthly payments towards your tax debt that are affordable based on your financial situation. In some cases, if the amount you are proposing will pay the owed taxes plus accruals in full over a certain period of time, then financial information may not be required to be presented. If that is not the case, then a taxpayer will have to go over their income and expenses with the IRS. Doing this helps determine what it is a taxpayer can ‘afford’ to pay on a monthly basis. If this is the step needed to establish an Installment Agreement, then one should know that the IRS has what they call Collection Standards. These are based on the number of people in your household claimed on your tax return along with the area in which you live. Often, the amounts the IRS considers “reasonable” are not realistic and this is where setting up any type of payment plan using financial information can quickly become convoluted and stressful.
If you are struggling just to pay your living expenses each month, the IRS may look at what is called a Non-Collectible Status for you. This is not a permanent fix, in fact, it is what we at True Resolve, refer to as a ‘band-aid’ to the situation. This status will result in the IRS backing off any aggressive collection actions for a period of up to two years to allow a taxpayer to improve their financial conditions to be able to afford a payment after this status is reversed. This status is typically used for someone who has recently lost a job or retired and their income has significantly decreased.
The most commonly asked about option is the Offer in Compromise. This is a settlement option where the IRS may settle your tax debt for a lesser amount. This option is not for everyone, in fact, a very small percentage of taxpayers nationwide qualify for this option. A taxpayer must be able to prove to the IRS beyond any doubt that the amount being offered as a settlement is the best collection option for the government. They have to know they will never be able to collect more than you are offering in order to accept this type of resolution option. If you are curious if this option is suitable for you, use this pre-qualifier tool to see if this is a viable option for you.
The thing to know if you are unable to pay your tax bill in full is that there are options. Knowing your rights as a taxpayer is the most important aspect of knowing your options. If you know your rights or have an Enrolled Agent going to bat for you that specializes in IRS resolution and knows your rights, then you are a step ahead of the IRS already.