Clark Howard

What to do when you can't pay your taxes

By Theo Thimou
By Theo Thimou

What should you do if you can’t pay your taxes? The short answer is you must still file a return.

It’s how you go about doing it that makes all the difference in what kind of long-term financial hit you’re going to take.

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Ways to pay the IRS what you owe them

If you fail to file and you owe money, the IRS charges a penalty rate that works out to be some 60% a year. But for those who file and can’t afford to pay, it’s only around 6% a year.

So you ignore filing — or at least filing for an extension — at your own peril.

The best advice is to just file and pay whatever you can. If you can pay the remainder within four months, you’ll usually only incur a minimal penalty.

Short-term payment plan (120 days or less)

  • $0 setup fee
  • Plus accrued penalties and interest until the balance is paid in full

Call 1-800-829-1040 to establish your request or visit IRS.gov/opa.

What can you do if you can’t pay your debt in 120 days?

If you expect it will take longer than 120 days to pay what you owe, you'll need to file Form 9465.

As long as you propose a reasonable payback time, usually before the end of the year, your 9465 will be easily approved.

Money expert Clark Howard offers the following tidbit to help you through your repayment time.

“If you propose a payment plan and just keep sending money, your outstanding balance may be paid off before the IRS even has a chance to accept or decline your 9465,” he says.

Long-term payment plan (with automatic withdrawals)

Use this option if you plan to pay off a balance less than $50,000 in more than 120 days through automatic withdrawals

  • $31 setup fee
  • Plus accrued penalties and interest until the balance is paid in full

Long-term payment plan (not paid through direct debit) 

Use this option if you plan to pay off a balance less than $50,000 in more than 120 days without automatic withdrawals

  • $149 setup fee ($43 if low income)
  • Plus accrued penalties and interest until the balance is paid in full

Call 1-800-829-1040 to establish your request or visit IRS.gov/opa.

Special note: If you stop paying for whatever reason and then want to resume making payments, there is an $89 fee to modify or reinstate an installment agreement.

Finally, what if the amount you owe is so large that you can’t even begin to think about paying? You must still file your return, Clark says.

“The penalties are so huge for failure to file and so light by comparison for failure to pay so long as you file,” he notes.

One thing to never do is put what you owe on your credit card. Should you do that, you’ll pay a convenience charge of around 2.75% plus interest to the credit card company on any balance you carry.

That’s guaranteed to be much higher than the penalties and interest you would pay the IRS!

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