If you owe the IRS, or you have a return you never filed, there is a good chance it has been quietly weighing on you. Maybe a letter arrived and you set it aside. Maybe a hard year simply got away from you. Whatever the reason, please hold on to two things: you are far from alone, and the situation is almost always fixable. Fall is actually one of the best times of year to deal with it — the spring filing rush is behind us, and the next tax season has not yet begun.
Quick Answer
If you are behind on your taxes, the best first step is to file any missing returns and then look at the IRS programs built for people who cannot pay in full — including payment plans, a possible settlement for less than you owe, a temporary pause on collection, and relief from certain penalties. Acting now, in the fall, stops new penalties from stacking up and gives you time to set up a plan before the next filing season arrives.
Why fall is the right time
Tax problems grow quietly. Penalties and interest are added month after month, so the longer a balance sits, the more it costs. Dealing with it in the fall, while things are calmer, gives you room to gather your documents, catch up on any unfiled returns, and get a plan in place before January. Taking that first step now is often the single most effective way to shrink what you ultimately owe.
First, file — even if you can't pay
Many people assume that if they cannot pay, they should not file. The opposite is true, and this one myth costs people real money. Filing and paying are two separate things, and the IRS charges very different penalties for each. The failure-to-file penalty is 5% of the unpaid tax for each month a return is late, up to 25%. The failure-to-pay penalty is far smaller — one-half of one percent (0.5%) per month, also up to 25%. In other words, not filing is penalized about ten times more heavily than not paying. There is also a minimum penalty if a return is more than 60 days late: for recent individual returns, it is the smaller of $525 or 100% of the tax you owe. The takeaway is simple: file now, even if you cannot write a check today.
Your options if you owe
The IRS has several programs for people who cannot pay in full, and part of my job is matching the right one to your situation.
Payment plan (installment agreement). A short-term plan of 180 days or less has no setup fee. For a longer plan, setting it up online with automatic direct debit carries a $29 setup fee (it is $69 online without direct debit, and higher by phone or mail). Individuals can generally apply online if they owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns. Lower-income taxpayers may have the setup fee waived or reduced. Penalties and interest keep running while you pay, but the failure-to-pay penalty drops to one-quarter of one percent (0.25%) per month once a plan is in place on a return you filed on time.
Offer in Compromise. In some cases the IRS will accept less than the full amount owed — if paying in full would create a true financial hardship, or if there is real doubt the balance could ever be collected. Not everyone qualifies, and the IRS looks carefully at your income, expenses, and assets before accepting an offer.
Currently Not Collectible status. If paying anything right now would leave you unable to cover basic living expenses, the IRS can temporarily pause collection. The balance does not disappear and interest keeps adding up, but it buys real breathing room while you get back on your feet.
Penalty relief. If you have generally been on time in the past, you may qualify for first-time penalty relief, which can remove certain failure-to-file and failure-to-pay penalties. Relief may also be available when you had a reasonable cause, such as a serious illness or a natural disaster.
A quick word on interest
Interest is separate from penalties. The IRS sets the rate each quarter (the federal short-term rate plus three percent for individuals) and it compounds daily. The IRS rarely removes interest, which is one more reason acting sooner almost always costs less than waiting.
How an Enrolled Agent can help
As an IRS Enrolled Agent, I am federally licensed to represent taxpayers before the IRS in all 50 states. That means I can speak with the IRS on your behalf, figure out which option actually fits your situation, and handle the paperwork so you do not have to face it alone. The first consultation is free, and there is no pressure — just a clear look at where you stand and what comes next.
A Note From Alisa
The most common thing I hear from people who are behind is relief — relief that they finally said it out loud and that there is a path forward. Tax problems almost always feel bigger in the dark than they do once you have a plan. We can help you get IRS transcripts so you are prepared to file your back returns.
Common Questions
What should I do first if I owe the IRS?
Start by filing any returns you have not filed, even if you cannot pay the balance. The penalty for not filing is much larger than the penalty for not paying, so filing right away limits what you owe. Once your returns are filed, you can set up a payment plan or look at other IRS relief options.
Can I set up a payment plan with the IRS?
Yes. The IRS offers short-term and long-term payment plans. A short-term plan of 180 days or less has no setup fee. Individuals who owe $50,000 or less, including tax, penalties, and interest, can usually apply online, and a long-term direct-debit plan set up online has a $29 setup fee, which may be waived for lower-income taxpayers.
Will the IRS ever take less than I owe?
Sometimes. Through an Offer in Compromise, the IRS may accept less than the full amount if paying in full would cause real financial hardship, or if there is genuine doubt the balance could ever be collected. Not everyone qualifies, and the IRS reviews your income, expenses, and assets closely.
What if I truly can't pay anything right now?
If paying the IRS would leave you unable to cover basic living expenses, the IRS can place your account in 'currently not collectible' status, which temporarily pauses collection. The balance and interest still remain, but it gives you time to recover.
Can penalties be removed?
Possibly. If you have a clean filing and payment history for the past few years, you may qualify for first-time penalty relief. You may also qualify if you had a reasonable cause, such as a serious illness or a natural disaster. Interest is harder to remove and usually stays in place.
Helpful Links
From Compass Tax Center: [paste the link to a related prior article here — see the note at the top of this document]
IRS, Payment Plans and Installment Agreements
IRS, Administrative Penalty Relief (First-Time Abate)
Checklist for Planning for Taxes
Compass Tax Center provides tax preparation, planning, and IRS representation services. This article is general information, not legal, tax, or investment advice for your specific situation. Alisa is an IRS Enrolled Agent, federally licensed to represent taxpayers before the IRS in all 50 states.
Have a question about your situation?
Every return is different. If you'd like a real person to look at yours, your first consultation with Compass Tax Center is free.