When you get that IRS letter saying you owe thousands, your first thought is often, “How am I supposed to pay this?” But the IRS doesn’t expect everyone to pay their unpaid taxes in full right away. They have several tax debt relief options built for people who are behind on taxes or facing financial trouble.
In this blog, we will break down the top tax debt relief options available today, explain how each one works, and show you how to choose the right path to finally get free from IRS debt.
Overview of Tax Debt Relief Options
The IRS gives taxpayers a few ways to handle tax debt depending on their situation. These are the main tax debt relief options available right now:
- Installment Agreement: If you can’t pay your full balance, the IRS lets you break it into smaller monthly payments.
- Offer in Compromise (OIC): Settle your debt for less than you owe.
- Currently Not Collectible (CNC): When your income barely covers the basics, the IRS can hit pause on collections.
- Penalty Abatement: If life hits hard (illness, disaster, or honest mistake), the IRS may remove penalties.
Every one of these tax debt relief options can stop the IRS from taking harsher actions, like garnishing your wages or placing a lien on your property. But each path has strict rules and qualifications. If you owe taxes and feel stuck, understanding these tax debt relief options is your first step toward fixing it.
Installment Agreements: Paying Tax Debt Over Time
If you can’t pay everything at once, an Installment Agreement lets you break your balance into smaller monthly payments. It’s the most common type of tax debt relief option because it’s simple and predictable. The IRS allows several kinds of payment plans based on how much you owe and how quickly you can pay.
Types of Installment Agreements
- Short-Term Payment Plan
- For debts under $100,000.
- You get up to 180 days (about 6 months) to pay in full.
- No setup fee, but penalties and interest still apply.
- Long-Term Payment Plan (Standard Installment Agreement)
- For debts under $50,000.
- Payments are spread over up to 72 months (6 years).
- You’ll pay a one-time setup fee. Online setup is cheaper.
- Partial Payment Installment Agreement (PPIA)
- For those who can’t pay the full debt even over time.
- You make smaller monthly payments based on your income and expenses.
- After a few years, the IRS may forgive the rest of the balance if you’ve paid faithfully.
- This is one of the IRS collection alternatives to full payment.
How to Apply
You can apply for IRS payment plans online if your total balance is under $50,000. If it’s higher, you’ll need to fill out Form 9465 and submit financial details like income, expenses, and assets. When your plan is approved:
- The IRS stops most collection actions (like bank levies).
- You’ll keep your assets if you stay current with payments.
If you miss a payment, though, they can cancel the plan and restart collections.
Offer in Compromise: Settling for Less Than You Owe
An Offer in Compromise (OIC) lets you settle your IRS debt for less than the full amount, but only if you prove you can’t pay in full through income or assets. You agree to pay a fair amount based on what you can truly afford. The IRS agrees to forgive the rest.
Who Qualifies for an Offer in Compromise
You may qualify if:
- You cannot pay the full tax debt before the collection period ends.
- Paying in full would create serious financial hardship.
- Your assets and income are too low to cover the balance.
The IRS checks your “reasonable collection potential” (RCP), which includes:
- Your income
- Your necessary living expenses
- Your available assets
If the IRS believes your RCP is less than what you owe, they may accept your offer.
How It Works
- You fill out Form 656 and Form 433-A (OIC) (for individuals) or 433-B (OIC) (for businesses).
- You submit your offer with a $205 application fee and an initial payment (unless you qualify for low-income status).
- The IRS reviews your forms and financial proof.
- While your offer is being reviewed, IRS collections are paused.
If your offer is accepted:
- You must pay the agreed amount within the chosen payment terms.
- You must stay compliant with all tax filings and payments for the next five years.
If your offer is rejected, you can appeal within 30 days using Form 13711.
If you don’t file or pay future taxes on time, the IRS cancels the settlement and reinstates your full balance with interest. An OIC is the most powerful of all tax debt relief options, but it’s also the hardest to qualify for. It’s best used when your finances are truly stretched and documented.
Currently Not Collectible Status: Temporary Relief for Hardship
Sometimes, you can’t pay anything at all. You’re not ignoring your debt; you just don’t have the money. In this case, you can ask the IRS to mark your account as Currently Not Collectible (CNC).
This means the IRS agrees that collecting from you right now would cause tax debt hardship. They pause collection actions like levies or wage garnishments until your situation improves.
How to Qualify
You’ll need to prove that your income barely covers necessary living expenses. The IRS uses Form 433-F, 433-A, or 433-B to review your financial picture. They’ll look at:
- Your total income.
- Basic living expenses (food, rent, utilities, and transportation).
- Assets like savings, property, or cars.
If everything shows that you have nothing left after living costs, the IRS may place your account in currently not collectible IRS status.
What Happens When You’re in CNC Status
- The IRS stops wage garnishments, bank levies, and collection calls.
- Interest and penalties still grow.
- Every year or two, the IRS reviews your finances to see if things have changed.
- If your income increases, collection can resume.
It’s not permanent, but it gives breathing room. Sometimes, debts expire under the 10-year statute of limitations, while in CNC, if your finances never improve, it means the IRS can’t legally collect anymore. If you’re facing eviction, unemployment, or medical bills, CNC is one of the most realistic tax debt relief options. It gives you time to recover without losing your home or paycheck.
Penalty Abatement: Reducing Your Tax Debt
If you’ve filed or paid late, penalties can balloon your balance. The IRS adds penalties for late filing, late payment, and underpayment. These add up fast. But the penalty abatement can remove or reduce them. It’s one of the most overlooked tax debt relief options.
When You Can Request Penalty Abatement
You may qualify for IRS penalty relief if:
- You filed or paid late for the first time in years.
- You had a serious illness or a natural disaster.
- A family emergency or death affected your ability to file or pay.
- You relied on the wrong professional advice.
There are two main ways to request it:
- First-Time Penalty Abatement (FTA): For taxpayers with a clean three-year filing history.
- Reasonable Cause Relief: When you can show you acted responsibly but still couldn’t meet the deadline.
How to Apply
You can call the IRS directly, send a written request, or file Form 843. Be clear, polite, and factual. Explain your situation and attach any supporting proof (hospital records, disaster reports, or prior clean-filing transcripts). When approved, the IRS will remove penalties from your account and recalculate the balance. That’s not a full tax debt forgiveness, but it can save hundreds or even thousands.
Pros and Cons of Different Tax Debt Relief Options
Every IRS program comes with trade-offs. Use the table below to compare.
| Option | Pros | Cons |
| Installment Agreement | Easy to set up; Stops most collections; Fits many budgets. | Interest & penalties keep adding; Default risk if you miss payments. |
| Offer in Compromise | May cut debt drastically; Stops collections during review. | Hard to qualify; Long process; Strict compliance rules. |
| Currently Not Collectible | Stops levies and garnishments; Gives breathing room. | Debt still grows; IRS reviews finances yearly. |
| Penalty Abatement | Reduces extra charges; Quick relief if approved. | Limited reasons accepted; Doesn’t erase tax owed. |
Common Mistakes to Avoid When Seeking Tax Debt Relief
Thousands of taxpayers lose their chance at relief each year because of simple errors. Avoid these:
- Ignoring the IRS: Silence triggers wage garnishment or bank levies.
- Submitting incomplete forms: Missing pages or unsigned forms cause automatic rejection.
- Lying about income or assets: The IRS cross-checks every number. False info kills your case.
- Promising payments you can’t keep: Set realistic numbers for an installment agreement or tax debt settlement.
- Falling for scams: Avoid companies that guarantee approval. The IRS doesn’t offer shortcuts.
- Skipping future filings: Even after approval, missing a single return can cancel your relief.
When to Seek Professional Help for Tax Debt Resolution?
Some taxpayers can handle simple plans alone. But when your case involves high balances or multiple years, professional help can protect you. Our IRS debt resolution specialists can help you if:
- You owe more than $25,000.
- You own a business or multiple properties.
- You’ve received a “Final Notice of Intent to Levy.”
- You want to appeal a rejected Offer in Compromise.
- You’re unsure which of the tax debt relief options fits you best.
Get IRS Off Your Back Today
If you ignore your tax bill, the IRS can empty your bank account, garnish your paycheck, and put liens on your home before you even know it’s coming. That’s where Bowes & Sullivan steps in. We stop IRS collections, negotiate tax debt relief options, and handle every detail of your tax debt settlement with the IRS so you don’t lose sleep or assets. Our tax attorneys and enrolled agents know every legal move to cut your balance, remove penalties, and secure the lowest payment plan possible legally and quickly.
The sooner you act, the more we can save you. Contact us today.
FAQs
Q1. Can I qualify for an Offer in Compromise if I own a home or car?
Yes, but it depends on your equity. The IRS looks at what your assets are worth minus what you owe on them. If you have little to no equity and can prove financial hardship, you may still qualify for an Offer in Compromise.
Q2. How long does it take the IRS to approve a payment plan?
Most payment plans get approved within a few weeks if your information is complete and accurate. More complex cases or large debts can take up to two months. You’ll usually get a notice confirming approval and your first payment date.
Q3. Will tax debt relief options stop the IRS from garnishing my wages immediately?
Not instantly. Wage garnishment usually stops once the IRS processes and approves your relief request, such as a payment plan or hardship status. The sooner you apply, the sooner the garnishment can be lifted or paused.
Q4. Are there fees associated with IRS installment agreements?
Yes. The IRS charges a setup fee, which varies by plan type. If you set up direct debit payments or qualify as low-income, that fee can be reduced or waived. Interest and penalties continue until the full balance is paid.
Q5.Does settling tax debt through an OIC affect my credit score?
No, the Offer in Compromise itself doesn’t show up on your credit report. However, if the IRS has already filed a tax lien, that lien could appear and impact your score. Once your debt is settled and the lien is removed, your credit can recover.
