Owing more than you can pay at tax time happens to plenty of people. A strong freelance year, a property sale, or too little withholding can all leave a balance that’s hard to cover in one payment. The IRS offers several structured paths for taxpayers in this position, and acting early keeps more of those choices open.
TL;DR: File your return on time, pay what you can, and request an IRS payment plan for the rest. Taxpayers in serious financial hardship may qualify for currently not collectible status or an offer in compromise.
What Happens If You Don’t Pay Taxes
Unpaid balances pick up penalties and interest starting the day after the payment deadline. The IRS then mails a series of notices, each more urgent than the last. If the debt stays unresolved, it can lead to a federal tax lien on your property or a levy on your wages and bank accounts. Replying to the first notice preserves the widest range of solutions.
The Penalty For Not Paying Taxes Versus Not Filing
Late filers generally face a failure-to-file penalty of 5% of the unpaid tax per month, up to 25%. The failure-to-pay penalty runs at 0.5% per month with the same 25% cap. Because the filing penalty is ten times larger, filing by the deadline is the most valuable step you can take when money is tight.
How Interest Adds Up
For October through December 2026, the IRS interest rate on individual underpayments is 7% per year, compounded daily. Interest applies to the tax and to any penalties. Sending whatever you can afford now shrinks the amount that interest grows on.
What If I Can’t Pay My Taxes By The Deadline?
File the return, pay what you can, and then request a payment arrangement. An extension moves back the filing date only, and payment remains due on the original deadline.
IRS Payment Plan Options
A payment plan is the most common route for people who can’t afford to pay taxes in one lump sum. The IRS lists every option on its payment plans page. Running your numbers through an IRS payment plan calculator first helps you choose a monthly amount you can sustain.
Short-Term Payment Plans
Individuals who owe less than $100,000 in combined tax, penalties, and interest can request up to 180 days to pay. Short-term plans carry no setup fee. They work well when you expect a bonus, a client payment, or a property sale in the coming months.
Long-Term Installment Agreements
Balances of $50,000 or less can usually be set up as monthly installments through the IRS website. Setup fees vary by how you apply and how you pay. Direct debit costs the least, and low-income taxpayers can apply for reduced fees. For on-time filers, the failure-to-pay penalty drops to 0.25% per month while the agreement stays in good standing.
IRS Tax Debt Relief For Financial Hardship
Some households can’t fit any monthly payment into their budget. Two programs exist for these situations, and each requires a detailed review of income, expenses, and assets.
Currently Not Collectible Status
Currently Not Collectible Status is often described as the IRS hardship program. It temporarily pauses collection when paying would keep you from covering basic living costs. Interest and penalties continue to build during the pause, and the IRS reviews your finances again over time.
Offer In Compromise
An offer in compromise allows qualifying taxpayers to settle their debt for less than the full balance. The IRS evaluates income, expenses, asset equity, and future earning potential. Using the IRS pre-qualifier tool before applying saves time and fees. If a case stalls, the Taxpayer Advocate Service, an independent office within the IRS, can step in.
Planning For Next Year’s Tax Bill
Large balances often trace back to income without withholding, which is typical for freelancers, gig workers, and landlords. Paying quarterly estimated taxes keeps the year-end bill manageable. Accurate bookkeeping also helps you avoid underreporting income, a mistake that brings its own penalties.
Our team works with small business owners, self-employed professionals, and property investors on year-round tax planning. Explore our tax services or contact JBS to talk through your situation with a tax professional.
Note: This article is for educational purposes only and does not constitute tax advice. Tax rules, figures, and percentages are subject to change and this article may not be fully up to date; visit IRS.gov for the most current information and consult a tax professional for guidance specific to your situation.
