I owe the IRS money but can't pay in full. What are my payment plan options?

The IRS offers several payment options if you can't pay your full tax bill, and ignoring the debt is the worst option. Here's what's available:

1. Short-term payment plan (up to 180 days):

• No setup fee if you apply online
• Available for balances of $100,000 or less (including tax, penalties, and interest)
• Apply at IRS.gov/OPA
• Interest and penalties continue to accrue, but there's no additional fee

2. Long-term installment agreement (monthly payments):

• For balances up to $50,000, you can apply online without calling the IRS
• For balances over $50,000, you'll need to provide financial information (Form 433-F)
• Setup fees: $22 for direct debit (auto-pay), $69 for non-direct-debit online applications. Low-income taxpayers may qualify for fee waivers.
• Monthly payments are spread over up to 72 months
• The failure-to-pay penalty drops from 0.5% to 0.25% per month while your installment agreement is in effect

3. Offer in Compromise (OIC):

• Allows you to settle your tax debt for less than you owe
• The IRS considers your ability to pay, income, expenses, and asset equity
• Requires a $205 application fee (waived for low-income) plus an initial payment
• Acceptance rate is historically around 30-40%, so this isn't automatic
• Use the IRS Pre-Qualifier tool at IRS.gov to check if you're eligible before applying

4. Currently Not Collectible (CNC) status:

• If paying any amount would prevent you from meeting basic living expenses, the IRS can temporarily suspend collection
• Penalties and interest still accrue, but the IRS won't levy your wages or bank accounts
• The IRS reviews your status periodically

5. Pay by credit card or personal loan:

• The IRS accepts Visa, Mastercard, American Express, and Discover through approved processors
• Processing fees: 1.85%-1.98% of the payment
• Compare the credit card interest rate against the IRS penalty rate. The IRS rate is typically lower, so an installment agreement is usually the better deal.

What NOT to do:

• Don't ignore IRS notices. Each unanswered notice escalates collection activity.
• Don't skip filing your return because you can't pay. File on time and pay what you can.
• Don't raid your 401(k) to pay the IRS without consulting a tax professional. The early withdrawal penalty plus income tax could make things worse.