What are your options if you owe the IRS back taxes?

When a taxpayer owes the IRS, the situation can feel intimidating, but there are several structured options designed to help resolve the balance before the IRS resorts to enforcement. The option you select will be based on several factors, including your ability to pay the IRS, your financial status, and how much you owe the IRS. 

Full payment options 

Extensions to pay  

The first option is often overlooked. The IRS’s extension to pay agreement (IRS calls it a “short-term payment agreement”) is a 180‑day window that allows taxpayers to pay their balance of less than $100,000 in full without entering into a formal installment agreement.

It is particularly useful for individuals who simply need a little time to gather funds or liquidate an asset. Although interest and failure to pay penalties continue to accrue, the extension avoids setup fees and prevents immediate collection action, making it a practical solution for short-term cash flow issues.

Installment agreements 

For taxpayers who cannot pay in full within six months, a payment plan, formally known as an installment agreement, is the most common and accessible resolution. Millions of taxpayers use these agreements every year because they are straightforward to set up and provide predictable monthly payments. These agreements can also be used to avoid tax liens and asset liquidation. Depending on the balance owed, the IRS may offer several options including: 

• A guaranteed installment agreement for debts under $10,000 can be paid within 36 months. 
• A simple installment agreement for balances up to $50,000. The IRS allows payments to be made through the end of the IRS’s collection statute of limitations (10 years from when the tax was assessed by the IRS). 
• A full-pay non-streamlined installment agreement for debts between $50,000 and $250,000.  In these cases, the IRS will file a Notice of Federal Tax Lien. In some cases, taxpayers may wish to get an extension to pay agreement to make voluntary payments to reduce the balance under $50,000 and enter into a simple installment agreement to avoid the lien filing. Careful coordination of these agreements and payments is necessary to avoid the lien filing. 

Hardship agreements 

Taxpayers may experience financial hardships and not be able to pay their tax bill with a payment plan or an extension to pay. In these circumstances, they can look to one of the hardship agreements offered by the IRS.  Taxpayers should be aware that IRS policy requires a Notice of Federal Tax Lien to be filed if the taxpayer is in a hardship agreement and owes more than $10,000. 

You must prove your financial hardship in all IRS hardship agreements. The IRS will request information to see if you can make payments through available assets (like savings, retirement funds, equity in home or recreational assets, etc.) or monthly income. 

There are several hardship agreements based on your circumstances: 

Currently not collectible status 

When a taxpayer’s financial situation allows them only to pay necessary living expenses, they may be able to defer payments to the IRS. A currently not collectible (CNC) determination is used when the IRS agrees that the taxpayer cannot afford to make any payments without compromising basic living expenses. While CNC status does not eliminate the debt and may still result in a federal tax lien, it temporarily halts active collection. The IRS can annually review this status and look to see if the taxpayers’ financial circumstances have improved, allowing them to now enter into a payment agreement. 

Partial-pay Installment Agreements 

For taxpayers who can pay something but not enough to fully satisfy the debt before the collection statute expires, a partial-pay installment agreement may be appropriate. This arrangement allows the taxpayer to make reduced monthly payments, with the remaining balance expiring at the end of the statutory collection period. The IRS will review this agreement every 2 years to determine if the taxpayer can pay more based on their income.   

Offer in compromise 

In the most severe cases, an offer in compromise may be the best option. This program allows taxpayers to settle their tax debt for less than the full amount owed when their assets and income demonstrate that full payment is not possible. Offers require extensive financial documentation and IRS review. To qualify, taxpayers must not have the ability to pay the IRS now and in the future with available assets and monthly payments. 

The wrong option: Doing nothing 

Doing nothing, however, is one approach that guarantees the situation will likely deteriorate. When a taxpayer ignores IRS notices and takes no action, the IRS has broad authority to escalate enforcement. This can include filing federal tax liens, issuing bank and wage levies, seizing assets, and imposing passport restrictions for taxpayers with seriously delinquent tax debt. Once enforcement begins, taxpayers often must scurry to obtain an agreement with the IRS and may face significant financial disruption. 

IRS current focus: High-debt taxpayers 

High-debt taxpayers face even greater urgency. The IRS prioritizes enforcement against taxpayers and businesses who have higher tax debts. In fact, individuals who owe more than $66,000 and are not in an IRS agreement on the back taxes are considered to have “seriously delinquent tax debt.” At this point, the IRS can certify the debt to the State Department, which may result in passport denial or revocation. These taxpayers are also more likely to face accelerated collection activity and increased scrutiny when seeking relief. Acting quickly is essential to avoid these consequences and preserve access to the full range of resolution options. 

Your next steps 

Every taxpayer who owes the IRS has choices, but the best outcome depends on taking action early and selecting the option that aligns with their financial reality. Whether the solution is a short-term extension, a long-term payment plan, a hardship-based agreement, or a settlement, proactive engagement with the IRS is the key to preventing enforcement and regaining financial stability. A qualified tax professional can help.

Jackson Hewitt tax resolution specialists work with the IRS, so you don’t have to. Learn more at https://www.jacksonhewitt.com/tax-resolution/.