What Happens If You Can't Make Federal Tax Payments?

Every year, millions of taxpayers head into tax season dreading that when they file, not only will they not receive a refund, but that they will actually end up owing the IRS money. As it turns out, in 2019, this is more of a possibility than in prior years. A Bloomberg article reports that due to recent tax reforms and new withholding formulas, approximately 5 million taxpayers who usually receive a refund will end up owing the IRS in 2019, according to the Government Accountability Office.

What To Do When You Can’t Pay the IRS

When you owe the IRS money, you have to be proactive and handle the situation. You can’t bury your head in the sand or ignore IRS notices, your IRS debt won’t go away and you will only end up incurring penalties. The good news is that the IRS is willing to work with you if you can’t pay all or even a portion of your tax bill.

Instead, you are instructed to still file your taxes on the due date and pay as much as you can toward your tax bill to avoid penalties and interest. You can call the IRS directly at 1-800-829-1040 to discuss your payment options like a short-term extension to pay the bill, installment agreement or payment arrangement and even temporarily delay collecting on your tax bill until a point in time when you're able to pay using a credit card, debit card or bank account.

Fill out Form 433-D to set up an installment payment plan with the IRS. Once you’re delinquent, the IRS will determine your payment plan eligibility using Form 433-F. Depending on your situation, the IRS may also be willing to waive any penalties you incur, but it cannot waive any interest charges you've accrued as a result of not paying your tax bill on time.

Levies and Liens

You need to pay your taxes in full when you file your tax return or the IRS will send you a bill for the amount you owe. This bill is what gets the ball rolling on the collection process that will continue as long as you owe the debt, or until the IRS can no longer legally collect and the time period for the collection expires – typically 10 years. If you fail to contact the IRS to set up a payment plan or some other arrangement, then the agency will pursue other avenues to collects its money, including filing a Notice of Federal Tax Lien, by serving you a Notice of Levy and/or offsetting any refunds you're entitled to.

A lien and a levy are two different things. As the IRS explains, “A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt.” Levies and liens are not the first attempt to get you to handle your tax debt. In fact, it's typically a last resort after taxpayers ignore tax bills and refuse to pay what is owed or set up payment arrangements.

Taxpayer Advocate Service

If you feel that your IRS woes are causing you financial hardship, you aren't receiving a response from the IRS after repeated tries or if you feel as though your rights as a taxpayer aren’t being respected, then you can contact the Taxpayer Advocate Service. TAS can help you obtain attorney representation or find a certified public account or enrolled agent with a Low Income Taxpayer Clinic. The TAS is an independent organization within the IRS that ensures taxpayers receive fair treatment.

For more information on how TAS can assist you, you can contact them directly at 1-877-777-4778.

Tax Payment Options

If you’re able to pay your tax bill, the IRS accepts several ways for you to remit payment. According to the TAS website, “You can pay with an electronic funds transfer or with a credit or debit card, or with a check by mailing it to the address listed on your bill or bringing it to your local IRS office.” There are other options, too. The IRS website informs that "IRS Direct Pay is a secure service you can use to pay your taxes for Form 1040 series, estimated taxes or other associated forms directly from your checking or savings account at no cost to you."