11 Most Popular IRS Tax Debt Relief Programs Explained

Anna Kuehl
Expert Contributor
Last Updated:

At Solvable, we understand that getting out of debt is not easy; we care about your financial well being and are here to help. We are committed to helping everyday Americans get into a better financial position by See More

If you can’t pay your tax debt, you might be tempted to ignore those IRS notices and wait for it to go away. Fortunately, there’s a better solution. The IRS offers several tax debt relief options that can help you resolve your balance and move on with your life.

Depending on your individual situation, you might qualify for a number of different tax debt relief options. Some of the most common programs include installment agreements, offers in compromise, and penalty relief. Find out how to get IRS tax debt relief and learn about how you can qualify for tax debt forgiveness.

IRS Tax Debt Relief Options

IRS tax relief programs allow you to resolve back taxes and penalties by finding a solution that works for both you and the agency. Although the IRS prefers it when you file and pay your taxes on time, the agency is often willing to work with you when you can only pay part of what you owe or when you need more time to pay. After all, the IRS would rather collect some of your balance than none of it.

Each of the available options within the IRS tax debt relief program has its own rules and requirements for eligibility. Take a look at some of the most common options to find out if one applies to your situation.

Lump Sum Payment

If you have outstanding tax debt, you’ll receive a series of notices from the IRS indicating the balance due and the steps the agency plans to take in order to collect. These IRS notices usually provide a 30-day advance warning before serious steps, like wage garnishment or tax liens, take effect.

11 Most Popular IRS Tax Debt Relief Programs Explained

The most efficient way to address tax debt is to pay off your balance before the IRS takes any drastic steps. If possible, pay the entire balance in a lump sum to address taxes, interest, and any penalties applied to your account. You can typically pay over the phone, by mail, or even online.

If you submit a lump sum payment, you can also avoid incurring additional penalties or interest. This means,your balance won’t continue to increase over time, so you can resolve your tax problems quickly and efficiently.

Installment Agreement

When you can’t pay your tax debt in one lump sum, you might be able to negotiate a payment plan with the IRS instead. As part of its Fresh Start IRS tax relief program, the agency allows taxpayers to apply online for installment plans, as long as they meet basic criteria:

  • Short-Term Payment Plan: You can apply for this plan if you owe under $100,000 in taxes, penalties, and interest. This plan requires you to pay your balance in 120 days or less and allows you to pay by check, money order, credit card, debit card, or making online payments. There’s no setup fee, but you will continue to incur penalties and interest until you pay the balance in full.
  • Long-Term Payment Plan: You can apply for this plan if you owe under $50,000 total and if you have no outstanding tax returns. This agreement involves paying your balance in monthly installments in more than 120 days. If you apply online and pay via direct debit, you’ll have to pay a $31 setup fee, plus penalties and interest accrued until you’ve paid the balance. If you apply online and pay via an online payment, a checking account, money order, credit card, or debit card, you’ll have to pay a $149 setup fee, plus any penalties and interest accrued.

While an installment agreement doesn’t eliminate your debt, it does offer tax debt relief. Signing up for an installment agreement and staying current on your monthly payments helps to prevent the IRS from taking additional action against you, such as seizing your wages or property.

Offer in Compromise

In many cases, you might never be able to pay your tax debt, even if you manage to negotiate an installment agreement and space out your tax payments over time. If you truly can’t pay your tax debt, you could qualify for an offer in compromise, a type of tax relief that lets you pay less than your balance to settle your debt. With this solution, you prepare an offer to present to the IRS detailing the amount you can reasonably pay without entering hardship. In extreme cases, this amount can be as low as $1.

When evaluating your offer in compromise, the IRS considers your ability to pay, your income, your living expenses, and the value of your assets. If the IRS determines that the amount you offered is equal or more than the agency can expect to collect from you before the statute of limitations expires, then it’s likely to accept your offer.

The IRS offers two payment options for offers in compromise:

  • Lump Sum: You pay 20% of the total offer up front. Then you have to pay the remaining balance in five or fewer payments.
  • Periodic Payment: You pay the first installment up front. Then you continue to make monthly payments until the balance is paid in full.

To apply for an offer in compromise as an individual, you need to do the following:

  • Complete IRS Form 433-A and attach all requested documentation.
  • Pay the nonrefundable $186 application fee.
  • Submit the initial payment as indicated on your application.

You can also start your application with the IRS over the phone. Use Solvable’s offer in compromise script to prepare yourself for the call and gather all the documentation you’ll need.

Tax Lien Withdrawal

If you neglect to pay your taxes, the IRS may place a federal tax lien against your property, which allows the government to claim an interest in your assets. You’ll know that the IRS has taken this step if you receive a Notice of Federal Lien, which also warns creditors that the agency has a right to your assets.

A lien might not sound like a big deal, but it can have serious effects. With a tax lien against your assets, you could have trouble getting credit from banks, your small business could be forced to pay your tax debt, and the IRS can claim an interest in future assets you acquire while the lien is in place.

Although paying your tax debt balance is the best way to avoid a federal tax lien, the IRS offers other options for tax lien relief. You can have a tax lien withdrawn before your assets are seized if you meet the following criteria:

  • You paid your tax debt in full, you’ve filed all outstanding returns for the past three years, and you’ve made all required estimated tax payments.
  • You converted an installment agreement into a direct debit installment agreement, your agreement pays your balance within 60 months, you owe $25,000 or less in tax debt, you’ve made at least three consecutive direct debit payments, and you’ve filed all outstanding returns and paid estimated taxes.

Bank Account Levy Release

In some cases, the IRS can place a tax levy on your assets, including your bank account. By taking this step, the IRS claims ownership of your bank account and can remove funds to cover your tax debt.

Like most IRS actions, a bank account levy takes at least 30 days from the date on the notice to take effect. This means you can take steps to have the levy released and get tax debt relief before the IRS begins removing funds from your account.

The IRS is required to release the levy and allow you to pay your tax debt via a different method in the following situations:

  • You paid the balance of your tax debt.
  • The statute of limitations expired before the IRS issued its tax levy.
  • You initiated an installment agreement that’s incompatible with the tax levy.
  • The tax levy creates serious financial distress and doesn’t allow you to cover your standard living expenses.

In the event that the IRS doesn’t grant your request to release the levy, you can submit an appeal. If the IRS removed funds from your account, you can even file a case to have them returned to your account. To start an appeal or submit a claim, call the IRS at the phone number on your most recent notice.

Wage Garnishment Removal

In addition to placing a levy on your bank account or property, the IRS can file a levy against your paycheck. Known as wage garnishment, this method means that the IRS has the legal right to take a percentage of every paycheck you receive. Since the federal tax code allows the IRS to take everything except what you need for basic living expenses, wage garnishment can quickly cause serious financial hardship.

Fortunately, you can have wage garnishments stopped and get tax debt relief in the following situations:

  • You can prove financial hardship: If you can demonstrate that wage garnishment is preventing you from paying your standard living expenses and driving you further into debt, the IRS may stop taking money from your paycheck. The agency will require you to find an alternate solution for paying your tax debt.
  • You propose an installment agreement: You may not be able to pay your balance all at once, but if you can propose a viable payment plan, the IRS may stop wage garnishment.
  • You submit an offer in compromise: If you can’t pay your tax debt, you can submit an offer in compromise that settles your balance for less than what you owe, while stopping wage garnishment at the same time.

Penalty Relief

Penalties from late tax returns and delayed payments can quickly increase your tax debt. If you can get out of paying your penalties, you can save hundreds or thousands of dollars. The IRS offers three types of penalty relief:

  • First-Time Penalty Abatement: If you haven’t received a penalty for the three previous tax years, you’ve filed or applied for an extension for all outstanding returns, and you’ve paid or made arrangements to pay your tax debt, you may qualify for first-time penalty abatement. Call the IRS at the phone number on your notice to pursue this option.
  • Reasonable Cause: The IRS may offer reasonable cause penalty relief if you experienced a fire or natural disaster or the death or incapacitation of an immediate family member. To discuss this option, call the IRS at the number on your notice and be prepared with documentation of your situation.
  • Statutory Exception: The IRS is capable of making mistakes and, if the agency gave you bad advice that caused penalties, you may be able to get statutory exception penalty relief. To pursue this type of relief, file IRS Form 843 and provide the required documentation, like your request for advice and the IRS’s mistaken advice.

Bankruptcy Filing

Filing for bankruptcy may be a last resort, but, in some cases, it can allow you to resolve your tax debt. Here’s what you need to know about bankruptcy and tax debt relief:

  • Chapter 7 Bankruptcy: Designed to discharge all of your debts, chapter 7 bankruptcy essentially liquidates all of your assets to pay off outstanding balances. This type of bankruptcy filing eliminates your debts, including tax debt, to give you a fresh start.
  • Chapter 13 Bankruptcy: Also known as a wage earner’s plan, this type of bankruptcy filing allows taxpayers with a steady income to pay back some or all of their outstanding debts. If you file for chapter 13 bankruptcy, you’ll need to propose an installment plan that covers all of your creditors, including the IRS. This means chapter 13 bankruptcy won’t eliminate your tax debt, but it will let you create an installment agreement to pay it off over time.

IRS Tax Debt Forgiveness

IRS tax debt relief can help you save money on your back taxes, but these programs aren’t the only option for putting tax debt behind you. In some cases, you can qualify for IRS tax debt forgiveness, which can eliminate some or part of your balance. If you can demonstrate to the IRS that it’s impossible for you to pay your tax debt or that you shouldn’t have to pay your balance, the IRS may be willing to forgive it.

Unlike the IRS’s tax relief programs, which offer several options for taxpayers in a wide range of situations, tax debt forgiveness is more difficult to get. In most cases, you have to prove serious financial hardship or reporting issues involving your current or former spouse in order for the IRS to forgive your tax debt.

If you do qualify for tax debt forgiveness, it’s in your best interest to apply. In the event that the IRS accepts your case and eliminates your balance, you can put your tax debt behind you once and for all.

Expired Statute of Limitations

If you’ve had tax debt for a number of years, you could have your balance forgiven more easily than you might think. The IRS can’t keep trying to collect the same back taxes from you for the rest of your life. In fact, the agency has just 10 years to collect the taxes, penalties, and interest it charges you.

If more than a decade has passed since the IRS initially assessed your tax debt, the statute of limitations expires. Which means, the IRS has to stop collection and forgive your tax debt. If your debt is close to a decade old, you might be able to continue to hold off on payment until the statute of limitations expires, especially if you work with an experienced professional to develop a plan.

Just because the statute of limitations expires doesn’t mean the IRS will automatically erase your debt, however. You’ll have to call the IRS to check that original date of assessment and confirm that the agency has stopped collection efforts.

Innocent Spouse Relief

When you file tax returns with your spouse, you trust them to report income and deductions accurately. In some cases, however, you might not find out about tax return errors until you receive huge tax bills or substantial penalties. If you don’t think you should be responsible for paying the taxes or penalties related to your current or former spouse’s mistakes, you may qualify for innocent spouse tax relief.

You could be eligible for this type of tax relief if you meet the following criteria:

  • You filed a joint return that understates the taxes you owe due to unreported income or an incorrect deduction or credit.
  • You agree that when you submitted the return, you didn’t know or didn’t have a reason to know about the understatement.
  • You didn’t receive a substantial benefit from the understatement, so it wouldn’t be fair to hold you liable for the taxes and penalties that resulted.
  • You and your spouse haven’t transferred assets to each other in an attempt to defraud the IRS.

To apply for innocent spouse relief, file IRS Form 8857. The IRS will decide whether you qualify and how much, if any, tax debt you’re responsible for. In most cases, your spouse will be responsible for paying the rest of the taxes and penalties. Keep in mind that certain types of tax debt, including business taxes and household employment taxes, aren’t included in the IRS’s innocent spouse relief program.

Currently Not Collectible Status

When your financial situation makes it impossible to pay your tax bill, you may qualify for currently not collectible (CNC) status. If you qualify, the IRS essentially allows you to defer your payment until your financial situation changes and you’re able to afford your tax bill. For example, if you lost your job and no longer have a steady income, you might not be able to pay your balance.

If you’re thinking about applying for CNC, it’s important to know that this status is technically temporary. The IRS reviews your financial status periodically to determine whether you can afford to pay your debt. If the agency thinks you can pay, you’ll lose your CNC status. However, if you maintain CNC status until the statute of limitations for your tax debt expires, the IRS may be obligated to forgive your tax debt.

Even if the IRS grants you CNC status, the agency has other methods to collect current and future tax debt. For example, the IRS can apply future refunds to your outstanding bill, and the agency can also place a federal lien against your property if your tax debt is over $10,000.

To apply for CNC status, you have to prove that you can’t pay your bill. Here’s how the process usually goes:

  • The IRS will ask if you have a savings account or other assets you can use to pay your taxes.
  • The IRS will require you to document your monthly income and living expenses to prove your financial hardship.
  • The IRS may also ask you to fill out Form 433, which includes a complete financial statement and requires pay stubs and receipts from your living expenses.

When you’re ready to apply, call the IRS using the phone number on your most recent notice or hire a tax debt relief firm to contact the agency on your behalf. Be prepared to discuss the specifics of your financial situation so the IRS can make a decision about your status quickly.

How to Get Help With IRS Tax Relief

If navigating the IRS’s tax debt relief and forgiveness programs alone sounds impossible, don’t worry. Tax relief firms are available to help you understand the programs available to you, walk you through the application process, and even represent you before the IRS when necessary.

Services Provided by IRS Tax Relief Firms

Most IRS tax relief firms can help you with one or more of the following services:

  • Negotiating Penalty Abatement: If the IRS has added penalties to your tax balance, tax relief firms may be able to have them removed. These firms can assess whether you qualify for IRS penalty relief and help you make a case and file necessary forms.
  • Applying for an Installment Agreement: When you can’t pay your tax debt in a lump sum, IRS tax relief firms can assist you with an installment agreement application. They can review your finances and tax debt and devise a payment plan that the IRS is likely to approve.
  • Submitting an Offer in Compromise: If you can only afford to pay part of your tax debt, tax relief firms can work with you to create and submit an offer in compromise. This tax debt relief program can save you hundreds or thousands of dollars. Since it’s challenging to apply for, having an experienced professional on your side is critical.
  • Releasing Tax Liens and Levies: It can be difficult to have a tax lien or levy released, especially if you don’t have an in-depth understanding of how the process works. Tax relief firms can get tax liens and levies released quickly, so you can regain ownership over your assets.
  • Stopping Wage Garnishment: If the IRS has started taking money out of your paycheck to pay your tax debt and it’s causing serious financial distress, tax relief firms can put a stop to this practice. Some experienced firms can stop wage garnishment in just days.

How to Find the Right IRS Tax Relief Firm

Although you’ll find countless IRS tax relief firms across the nation, not all of them are qualified to help you. To find the right company to handle your individual situation, read reviews of tax relief firms and ask the following questions:

  • Is the firm licensed to serve clients in your state? Some small firms can only assist taxpayers in one or two states, while larger organizations can serve clients across the nation.
  • Does the firm have a good track record? Many experienced IRS tax relief firms share the amount they have resolved or saved clients each year. Check these statistics to confirm whether the firm is successful in resolving tax debt issues.
  • How much does the firm charge? When you deal with tax debt, you want to make sure you don’t spend more than you owe. Ask about the firm’s fee structure and payment plans before you start working together.
  • Does the firm offer free consultations? If you aren’t sure how to proceed with your tax debt issues, a free consultation can be a smart place to learn about your options without spending a penny.
  • Does the firm have tax attorneys on staff? Depending on your individual situation, you may need assistance from an attorney. If you need audit representation, criminal defense, or assistance with complex tax matters, look for a firm with at least one tax attorney on staff.

If you can’t pay your IRS tax debt, resist the temptation to ignore it in hopes that it won’t catch up to you. Tax debt never goes away on its own, but you do have options for reducing or eliminating your outstanding balance. Naturally, the IRS wants to collect as much as possible from your balance. That’s why the agency makes several options available for federal tax relief and forgiveness.

Whether you qualify for an installment agreement that allows you to pay your tax debt over time, you negotiate an offer in compromise that lets you save hundreds or thousands of dollars, or you’re eligible for innocent spouse relief or CNC status, the IRS offers options that work for a wide variety of individual situations.

When you pursue IRS tax relief or forgiveness, remember that you don’t have to do it alone. Get help from an experienced IRS tax debt relief firm to put your debt issues behind you once and for all.

Next Steps:

Author:
Anna Kuehl

Anna is an experienced writer and editor who focuses on digital marketing, health and wellness, travel—but rarely all at once. With her background in research and the arts, Anna has a solid sense of the art of storytelling, along with a drive to gather the supporting data for those narratives.

Solvable Exclusive Offer


How Much Tax Debt Do You Owe?

 Recommended

IRS Offices Near You

Clear All Filters