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

Millions of people head into tax season dreading not only that they won't receive a refund, but that they'll actually end up owing the IRS instead. This fear has some basis in fact. The Tax Foundation reported in October 2020 that many taxpayers found that their refunds shrunk in 2019 from what they were in previous years as a result of changes made to withholding tables pursuant to the Tax Cut and Jobs Act. You're not without options, however, if you find you owe a tax bill.

What to Do When You Can’t Pay the IRS

Be proactive and handle the situation as soon as possible if it turns out that you owe the IRS money. You can’t bury your head in the sand or ignore IRS notices because your tax debt won’t go away. You'll 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.

You should still file your tax return by the year's due date and pay as much as you can at that time to minimize penalties and interest. Then you can call the IRS directly at ​1-800-829-1040​ to discuss your payment options, which can include a short-term extension to pay the bill within 120 days, an installment agreement over a period of years, or even a temporary delay on collecting on your tax bill until a point in time when you're more able to pay.

Fill out Form 433-D to set up an installment payment plan with the IRS. The agency will determine your payment plan eligibility using information you provide on Form 433-F, although completing this second form isn't required for all installment agreements. This form is typically reserved for payment plans that must be approved by the IRS based on your financial condition and assets owned.

You're guaranteed an installment agreement without completing this form if:

  • The tax you owe is ​$10,000 or less​.
  • You haven't entered into an installment agreement with the IRS within the last ​five years​.
  • You've filed all required tax returns for the last ​five years​.

You can also apply online if you owe ​$50,000 or less​ for a long-term plan, or ​less than $100,000​ for a short-term plan. These thresholds apply to the tax you owe, plus any penalties or interest that have accrued.

Levies and Liens

The IRS will send you a bill for the amount you owe if you don't pay your taxes in full at the time you file your tax return and if you don't make other payment arrangements or enter into negotiations to do so. This 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 it because the statute of limitations for collection has expired. This is typically ​10 years​.

The agency will pursue other avenues to collect its money, including filing a Notice of Federal Tax Lien, serving you with a Notice of Levy and/or offsetting any refunds you're entitled to. A lien and a levy are two different things. 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,” according to the IRS.

Levies and liens aren't the first attempt to get you to handle your tax debt, however. They're typically a last resort after taxpayers ignore tax bills and refuse to pay what's owed or to set up payment arrangements.

The Taxpayer Advocate Service

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

You can contact TAS directly at ​1-877-777-4778​ for more information about how they can assist you.

Tax Payment Options

The IRS accepts several ways for you to remit payment if you do have the funds available to pay your tax bill. 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 as well. The IRS indicates 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."