What Happens If I Can’t Pay My Taxes? Expert Guide – 2025 Solutions

Tax Day is every April 15, and the idea of owing money to the IRS might seem daunting. However, ignoring unpaid taxes could lead to serious risks like property liens and wage garnishments.

The good news? Several options exist when you cannot handle your tax bill. The IRS provides different payment plans and programs. Recent data shows the IRS approved only about one-third of tax debt reduction applications in 2022. Quick action is vital to avoid extra penalties that start adding up right after-Tax Day.  

This guide explains what to do if you’re unable to pay your taxes. You’ll learn about the payment options available, practical strategies for managing tax debt, and how to navigate communication with the IRS. We’ll break down the potential risks and help you choose the best path forward based on your specific situation.

What to do immediately if you can’t pay your taxes

Take a deep breath the moment you realize you cannot pay your tax bill—then act fast. The situation will only get worse if you ignore it.  Do the first 3 steps below before taking any further action to minimize any damage:

  • File your tax return anyway. This step is crucial, whatever your ability to pay. Filing on time avoids the failure-to-file penalty (5% monthly, up to 25%), which is 10x higher than the failure-to-pay penalty (0.5% monthly). If you file over 60 days late, the minimum penalty is $525 or 100% of unpaid tax (whichever is less).  Even though you cannot file an extension after the due date, filing your return now is critical to limit the late filing penalty amount.
  • Pay whatever amount you can with your return. Your unpaid balance will accrue less interest and fewer penalties with partial payments. Even small payments show you are trying to meet your tax obligations.  
  • Contact Chamberlain Tax Solutions for a free initial consultation meeting.  Contact us after the first 2 steps above to help sort out your options and, if needed, schedule a strategy meeting before contacting the IRS.   Please use the contact form on this website for the fastest response.  The form sends me an email message which eliminates “phone-tag”.
  • Contact the IRS directly instead of waiting for them to reach out. The IRS works better with taxpayers who take initiative about their tax situations. You can call the number on your bill or notice or reach the general IRS helpline at 1- 800-829-1040.
  • Gather your financial information before you explore options with the IRS. Your recent bank statements, income details, and expense information will help determine the best solution. The IRS might need this documentation, especially for certain payment plans.
  • Think about professional help if your taxes are complex. A tax professional can handle IRS negotiations and might find options you did not know existed. Tax attorneys, CPAs, and Enrolled Agents bring different expertise and charge varying fees. These fees vary because it depends on the complexity of the taxpayers situation.
  • Look into IRS payment options like installment agreements, Offers in Compromise, or Currently Not Collectible status. Make sure you understand the qualifications and what it all means before moving forward.
  • Avoid creating new tax debt by adjusting your withholding or making estimated tax payments this year. You will create an endless cycle of tax problems if you fix past debt without staying current.

Note that most IRS collections staff respond well when you honestly try to resolve your tax debt. Communication is essential—they see silence as disregard for your obligations and respond with aggressive collection actions.

IRS payment options to manage your tax debt

The IRS gives you several ways to pay if you cannot handle your tax bill right away. These options help you pick what works best with your financial situation.

Short-term payment plans let you pay within 180 days if your total bill is under $100,000 in tax, penalties, and interest. You will not pay any setup fees with this option, but penalties and interest keep adding up until you pay everything.

Long-term installment agreements let you make monthly payments for up to 72 months if you owe $50,000 or less. Setup fees as of July 2024 are:

  • Online direct debit: $22
  • Online non-direct debit: $69
  • Phone/mail/in-person direct debit: $107
  • Phone/mail/in-person non-direct debit: $178

Low-income taxpayers (≤250% federal poverty level) may qualify for waived or reimbursed fees if using direct debit.

An Offer in Compromise (OIC) might let you settle your tax debt for less than you owe if you are facing the most important financial hardship. The IRS accepts an OIC when they believe your offer is the most they can collect within a reasonable time. The approval rates are not high.

You need to file tax returns, no bankruptcy status, and all required estimated tax payments to qualify for an OIC. The process requires a $205 non-refundable fee plus your first payment based on your payment choice.

Currently Not Collectible status stops collection actions temporarily if you are dealing with severe money problems. Your debt does not go away – interest and penalties still grow – but it gives you space to breathe during tough times.

The quickest way to apply is through the IRS website. Online applications cost less and get processed faster for most payment options. Low-income taxpayers might pay reduced fees or get them waived for certain payment plans.

What happens if you do not pay your taxes

Not paying your taxes sets off a chain of serious consequences that get worse as time passes. A clear picture of what you stand to lose might push you to tackle tax problems right away.

The penalties start right after the filing deadline passes. Your unpaid taxes face a monthly penalty of 0.5% from the IRS, which can add up to 25% of the total amount. Interest also builds up daily at the federal short-term rate plus 3%, with quarterly changes.

You will start getting notices about your unpaid taxes. These messages begin as friendly reminders but become more demanding over time. The IRS moves toward collection actions after sending several notices.

A federal tax lien is a legal claim against your property and future assets, recorded in public records. While tax liens no longer appear on credit reports (removed by all major bureaus since 2018), they still:

  • Appear in public records, alerting potential lenders
  • Complicate property sales or refinancing
  • May indirectly affect creditworthiness if discovered during manual reviews

The IRS may issue a levy to seize wages, bank accounts, or property. Wage garnishments do not appear on credit reports, but they can strain finances and indirectly affect loan applications if lenders discover them through bank statements

The Treasury Offset Program lets the IRS grab future tax refunds until you clear your debt. They could also take away or refuse to give you a passport if you owe $59,000 or more. The worst cases of tax fraud or purposeful evasion could lead to criminal charges with heavy fines and jail time.

It is worth mentioning that tax debt sticks around – the IRS has 10 years from the assessment date to collect. During this time, penalties and interest keep growing and increase your original balance.

Taking care of your tax situation quickly gives you the best chance to limit damage and keep control of your financial future.

Conclusion

Tax debt can feel overwhelming, but you have several ways to manage unpaid taxes. Quick action through IRS programs helps minimize penalties and protects your financial future. Filing your return is essential, whatever your payment situation.

The IRS offers multiple paths to resolve tax debt through short-term extensions, installment agreements, or an Offer in Compromise. Each option has specific requirements and potential risks, so you need to review your financial situation carefully before making a choice.

Waiting too long guides to mounting penalties, possible liens, and eventual asset seizure. Taxpayers get better outcomes when they tackle tax issues directly and keep communication open with the IRS. Many Americans face tax debt challenges each year, but knowing your options and acting quickly puts you back in control of your finances.

Contact Chamberlain Tax Solutions using the Contact Form at for a consultation meeting to help determine the best approach to resolve your tax issue with the IRS.

Thank you,

Steve Chamberlain, Enrolled Agent.