What Are My IRS Tax Debt Relief Options If I Can’t Pay Yet?

April 1, 2022

Millions of Americans are finding it difficult to pay their tax bills on time, and with the cost of living crisis, the issue is likely to get worse in the future. So, what can you do if you aren’t able to pay your taxes by the time they are due? The IRS offers several tax debt relief options to people who are running late. Depending on your situation, you might be able to delay payments or reduce the amount you owe.

While this forgiveness program exists to help taxpayers who are in financial trouble, it’s not always easy to access the solutions. If you’re worried about your taxes, you should speak to a specialist as soon as possible. They can analyze your situation and let you know which of the options is the most suitable, then help you with your application. Let’s have a closer look at the debt relief options currently available.

What Tax Debt Relief Options Does the IRS Offer? 

The government believes that everyone should pay their taxes on time and in full, but they understand that this isn’t always possible. For instance, people’s businesses might have become less profitable over time, making it difficult for them to pay off tax debt from previous years. To help taxpayers avoid financial difficulties, the IRS has created a forgiveness program that can provide relief.

There are four options, and they can help with different kinds of issues. For instance, the installment agreement allows you to spread out your bill over a longer timeframe, while currently not collectible status defers payments until your financial situation improves. In some cases, the debt can be reduced or eliminated through innocent spouse relief or an offer in compromise.

Installment Agreement

The easiest way to avoid penalties is to make an installment agreement with the IRS. If you can’t pay everything you owe right now, you can spread out your payments over several months or years. As long as you pay off your debt within six years, you won’t have any issues with the IRS. This option is not only quick, but it is also accessible to almost everyone.

Anyone who owes less than $50,000 can use the online tool to apply for their installment agreement and get an instant answer. Those who have more debt must speak to an IRS representative on the phone. They might need to provide additional documentation about their income and assets, and they won’t get a decision for several months. If you have high levels of debt, you should ask your tax advisor to negotiate with the IRS for you.  

Offer in Compromise 

Some people, for example, those who have experienced a significant drop in their income, might find it impossible to pay off their tax debt, even if it is spread out over six years. In such a situation, an offer in compromise could be the ideal solution. This involves offering to pay only a part of what you owe to the IRS. Although this may seem like a good way to get rid of your debt, it’s important to remember that most people who apply for an OIC are not successful.

Only around 40% of offers in compromise get accepted, so you’ll need to make sure you’re eligible and you’ve collected enough proof. Since a successful OIC is quite rare, you should always double-check with a tax professional before sending your documentation to the IRS. A specialist can let you know what to do to maximize your chances of getting your tax bill reduced.

Innocent Spouse Relief

Innocent spouse relief is a type of tax debt relief that is available to people whose partner caused the issue. If your spouse made a mistake on your joint tax return and you didn’t know about it at the time of filing, you may be eligible for ISR, in which case your spouse will be responsible for the entire bill, and you won’t face any action from the IRS.

In addition to proving that you didn’t cause the problem, you’ll also need to provide evidence that you had no reason to know about it. It can be hard to convince the IRS that it would be unfair to hold you responsible, so you need to gather as much proof as you can.

Currently Not Collectible Status 

More and more people are struggling to pay for their basic costs of living. If you are barely breaking even or you don’t currently have an income, the government may grant you “currently not collectible” status and allow you to defer your tax payments until your situation improves. However, CNC doesn’t mean that you’ve been relieved of your tax burden. If your income increases within 10 years, you will have to resume payments.

Other Options

The IRS tax forgiveness program is comprehensive and offers taxpayers some excellent options. However, there are other ways of reducing your bill or paying it off in manageable increments. When you contact your tax specialist, they will discuss whether the installment agreement is the best option or whether you should finance your tax bill in another way. They can also help you get your penalties abated.

Getting Penalty Abatement  

People who fail to file their taxes or pay their bills on time are penalized by the government. You might have to pay a hefty penalty of up to 25% of your bill as well as daily interest on the entire amount. But before you make your first payment, ask your advisor whether you could get these penalties removed from your account.

First-time abatement, which is designed for people who have never had issues with the IRS before, is extremely easy and can reduce your bill significantly. Similarly, people who have reasonable cause for late payment, such as a death in their family or a medical emergency, can also ask for their penalties to be removed.

Financing Your Tax Bill 

While the installment agreement can be a good solution, you will pay monthly interest on your balance. Speak to your advisor about how much extra you will pay and whether there are any better options out there. Depending on your credit score and personal situation, you might be eligible for a 0% credit card.

If so, paying off your tax debt immediately and putting the debt on the credit card could save you a lot of money, especially if you know that you’ll be able to pay it off within the interest-free period. Similarly, you might be able to obtain a personal loan that is cheaper than the installment agreement.

Citizens who have trouble paying their tax bills can get help from the IRS. There are various debt forgiveness options such as the installment agreement, offer in compromise, innocent spouse relief, and currently not collectible status. What’s more, you can ask for penalty abatement or pay off your debt slowly using a personal loan or credit card.

While these tax debt relief options are available to all taxpayers, it’s not always easy to gain access to them. To make sure you don’t miss out or overpay, you should consult with a tax specialist as soon as possible. Get in touch with us now at Geaux Tax Resolution in Lafayette, LA to book a meeting with one of our experts. We will be happy to review your situation and help you find the most appropriate solution.