In 2022 returns alone, Americans owed an estimated $696 billion in unpaid taxes, according to the IRS. That record tax gap means millions of people are in the same position you may be in right now.
Owing back taxes is far more common than most people realize. Therefore, the IRS has structured, well-defined programs specifically designed to help taxpayers resolve the debt.
If you are figuring out how to pay back taxes, the right option depends on your exact balance and your current financial situation. This guide covers every official IRS payment path available, so you can find the one that fits your situation.
You can also work with professional tax resolution services like Karme to find the best payment plan or relief option for your situation.
How to Pay Back Taxes: 6 IRS-Approved Options
Before you decide how to pay, you need to know the exact amount you owe to the IRS. This includes your original tax bill plus any penalties and interest that have been added. You can learn about it through your IRS account or from the IRS penalty notices you may receive. This matters because each IRS payment option has specific dollar limits. So, the amount you owe will decide exactly which options are available to you.
Here are options you can avail to pay back taxes.
Option 1. Pay in Full
Paying your full tax balance at once is the simplest and least expensive option. It immediately stops new penalties and interest from being added. Moreover, you do not need approval or to fill out an application.
That said, here’s how you can pay.
- IRS Direct Pay: This is a free service available at IRS.gov. It does not require registration, and you receive instant confirmation after payment.
- Electronic Federal Tax Payment System (EFTPS): This option is also free. It allows you to schedule payments up to 365 days in advance. However, you must enroll first, and the enrollment process can take up to five days.
- Debit or credit card: You can pay through IRS-approved payment processors. Fees usually range from $2 to $4 for debit cards or about 1.99% of the total payment for credit cards.
If you cannot pay the full amount right now, pay as much as you can. This reduces your remaining balance, which lowers the amount of interest and penalties that will continue to build over time.
Option 2. Short-Term IRS Payment Plan
This option gives you up to 180 days to settle your tax debt in full. There is no required monthly payment amount, so you can decide how much to pay and when, as long as the full balance is paid by the deadline. To qualify, you must owe less than $100,000 in total, including taxes, penalties, and interest, and you must have filed all required tax returns.
There are three ways you can apply.
- Online using the IRS Online Payment Agreement tool at IRS.gov.
- Call the IRS directly
- Mail Form 9465 to the IRS.
There is no setup fee for this plan. However, penalties and interest continue to build on the unpaid balance during the payment period. Therefore, it is best to pay as much as you can as early as possible, instead of waiting until the end of the 180-day period.
Option 3. Long-Term Installment Agreement
When considering how to pay back taxes, you can also choose a long-term installment agreement. It allows you to make fixed monthly payments over a period of up to 72 months (6 years) until your balance is fully paid.
To qualify for a long-term payment plan, you must owe $50,000 or less in total, including taxes, penalties, and interest. Moreover, you must have filed all required returns. Then, you can apply online using the IRS Online Payment Agreement tool.
But before that, here are some requirements you need to know:
- Setup fee is $22 if you use automatic payments from your bank account (direct debit).
- Setup fee is $69 if you do not use direct debit.
- If you owe more than $25,000, you must use direct debit.
Once your agreement is active, the failure-to-pay penalty is reduced from 0.5% to 0.25% per month. And if you owe $10,000 or less and meet all eligibility requirements, you may qualify for a Guaranteed Installment Agreement, which the IRS must approve.
Option 4. Offer in Compromise (OIC)
An Offer in Compromise lets you settle your tax debt for less than the full amount you owe. To qualify, you must show that you cannot afford to pay the full balance. The most important acceptance criteria is called “Doubt as to Collectibility.” This means that your income and assets are not enough to pay the full debt.
In addition to this, you need to ensure you meet the following requirements:
- You have filed all required tax returns
- You are current on estimated tax payments
- You are not in an active bankruptcy case.
You can also check if you are eligible by using the free OIC Pre-Qualifier tool on the IRS website. If it shows you qualify, you can proceed to submit Form 656, Form 433-A, and a $205 application fee. However, you don’t have to pay this fee if your income is at or below 250% of the federal poverty level.
Option 5. Currently Not Collectible (CNC) Status
Currently Not Collectible status temporarily stops IRS collection efforts if you cannot pay anything without covering basic living expenses. This includes stopping serious actions such as wage garnishments and asset seizures. However, the IRS will restart collection actions as your situation improves.
To request CNC status, you must submit Form 433-F or Form 433-A with complete details about your income, expenses, and assets.
Be aware that CNC does not mean your tax debt is forgiven. The interest and penalties will continue to add up during this time. Therefore, it’s recommended to use the CNC status as a short-term solution during a serious financial hardship.
Also, if you expect your income to improve, consider applying for an Offer in Compromise at the same time to reduce your total debt before the IRS reviews your case again.
Option 6. First-Time Penalty Abatement (FTA)
First-Time Penalty Abatement allows you to remove certain penalties for one tax year, such as penalties for filing late or paying late. It does not reduce the original tax you owe, but it can lower your total balance. To request FTA, you can call the IRS directly at 1-800-829-1040.
To qualify, you must have:
- A clean record with no penalties in the past 3 years
- Filed all required tax returns
- Either paid your tax debt or set up a payment plan.
Final Words
To learn how to pay back taxes, you need to match the right IRS program to your balance and financial situation. Then, you can either pay in full, set up an installment agreement, or pursue hardship-based relief like an OIC or CNC status.
However, handling IRS agreements on your own can feel overwhelming, especially if you have large balances or complex income situations.
At Karme, we help make things easier by connecting you with qualified tax professionals who are especially skilled in tax debt resolution. Our team will offer you personalized guidance and negotiate with the IRS on your behalf so you can pay your back taxes more easily. Contact us today to get started.
