Those who find themselves owing Uncle Sam more than they can afford to immediately pay off have options. It is important to consider these options and act to manage these bills. Taxpayers who ignore tax debt can find themselves facing penalty fees and additional interest. These extra expenses can add up, making an already large tax bill seem unmanageable.
To avoid this, or find some control if you already find yourself in this situation, consider the following options:
- Payment plan. The Internal Revenue Service (IRS) generally has two types of payment plans. The first, a short-term option, gives the taxpayer up to 180 days to pay off their tax bill. The second, a long-term plan, is available for those who need longer.
- Offer in compromise. The IRS may also accept an offer in compromise. This option involves sending the agency an offer to pay off the tax bill for less than is actually owed. Taxpayers need to provide evidence to support the claim that the offer is all they can afford to pay. If accepted, the IRS forgives any remaining qualifying debt.
- Currently not collectible. This option is a temporary pause on tax collection and can give you additional time to pay off your taxes.
These are just a few options to consider. Each comes with benefits and risks. Interest and penalties can continue to accrue with a payment plan. In contrast, an accepted offer in compromise settles the entire applicable tax bill but the IRS is known for frequently rejecting these proposals. In either situation or when considering other options, it is good to consider all of these factors before making the decision that is right for your situation.