How to Pay a Large Tax Bill: IRS Payment Options

If you have a large tax bill from the IRS that you cannot pay in full, several options are available. The Internal Revenue Service provides several structured programs to help manage this financial pressure. These options provide a clear path for resolving tax obligations without causing severe financial strain. This guide explains the methods for paying or resolving a significant tax liability with the IRS.

Direct Payment Methods for Your Tax Bill

For those who can access the funds, paying a tax bill in full is the most direct way to resolve the debt and stop the accrual of penalties and interest. The IRS offers several methods for immediate payment. One of the most straightforward is IRS Direct Pay, a free online tool that allows for a direct transfer from a checking or savings account and does not require registration.

Another option is to pay using a debit or credit card. These payments are processed through third-party companies that charge a fee. Debit card fees are a small flat amount, around $2 to $4, while credit card fees are a percentage of the payment amount, often close to 2%. Paying by credit card can be a quick way to settle the debt.

Some individuals may consider using a personal loan to pay their tax bill. This strategy involves borrowing from a financial institution to pay the IRS in full. The interest paid on a personal loan may be lower than the combined interest and penalty rates charged by the IRS, effectively converting the tax debt into a standard loan.

Requesting an IRS Payment Plan

When immediate payment is not possible, the IRS provides payment plans that allow for the debt to be paid over an extended period. These formal agreements prevent more severe collection actions like levies or wage garnishments. While they do not stop interest and penalties from accruing on the unpaid balance, the failure-to-pay penalty rate is often reduced.

The Short-Term Payment Plan grants up to 180 additional days to pay the tax liability in full. This option is available to taxpayers who owe less than $100,000 in combined tax, penalties, and interest. There is no setup fee for this type of plan, making it a cost-effective solution.

For those who require more time, a Long-Term Installment Agreement is the primary solution, allowing for monthly payments for up to 72 months. The IRS offers a streamlined application process for individuals who owe a combined total of $50,000 or less, which does not require a detailed financial statement. For balances between $25,000 and $50,000, payments must be made via direct debit from a bank account.

Taxpayers with larger debts over $50,000 may qualify for a non-streamlined installment agreement. For debts up to $250,000, this type of agreement is available but requires the filing of a Notice of Federal Tax Lien. To be eligible for any payment plan, the taxpayer must have filed all required tax returns.

Solutions for Financial Hardship

For taxpayers facing significant financial difficulties that prevent them from meeting their tax obligations with a payment plan, the IRS offers specific relief programs. The two primary options are an Offer in Compromise (OIC) and placement in Currently Not Collectible (CNC) status.

An Offer in Compromise allows certain taxpayers to resolve their tax liability with the IRS for a lower amount than what they originally owed. The OIC program is for situations where there is doubt that the tax liability can ever be collected in full. The IRS evaluates an OIC application based on the taxpayer’s ability to pay, income, expenses, and asset equity. The agency provides an OIC Pre-Qualifier tool on its website to help determine potential eligibility.

To be considered for an OIC, a taxpayer must have filed all required tax returns and made all required estimated tax payments. Currently Not Collectible status is a temporary suspension of collection activities. This is granted when the IRS determines a taxpayer cannot afford basic living expenses and also pay their tax debt. CNC status does not eliminate the tax debt; interest and penalties continue to accrue on the outstanding balance.

The IRS will review the taxpayer’s financial situation periodically to see if their ability to pay has improved. While in CNC status, the IRS will not levy bank accounts or garnish wages, but it may file a Notice of Federal Tax Lien and may keep any future tax refunds to apply to the debt.

Required Information and Forms for IRS Programs

Applying for an IRS payment program requires gathering specific financial documentation. You will need proof of income, such as recent pay stubs, W-2s, or detailed profit and loss statements if you are self-employed. You will also need a comprehensive list of your average monthly living expenses, covering categories like housing, utilities, and healthcare. A complete inventory of your assets is also necessary, including balances of all bank and investment accounts and the fair market value of vehicles and real estate.

This information is used to complete the required applications.

• Online Payment Agreement (OPA): This tool on the IRS website is the most efficient method for requesting short-term and streamlined long-term plans.
• Form 9465, Installment Agreement Request: For those who cannot use the online tool or prefer a paper application, this is the primary form for a standard Long-Term Installment Agreement.
• Form 433-F, Collection Information Statement: For an Offer in Compromise, Currently Not Collectible status, or non-streamlined installment agreements, this more detailed financial disclosure is required.
• Form 433-B, Collection Information Statement for Businesses: This is the equivalent form for businesses.

The Application Process for IRS Assistance

The most efficient application method is through the IRS’s online tools, which require you to verify your identity through the secure access process. The Online Payment Agreement (OPA) tool guides you through the application, and you can often receive immediate notification of approval.

If you are not eligible to apply online or prefer a paper application, forms can be sent by mail. When requesting an installment agreement with your tax return, attach Form 9465 to the front of your return. If filing it separately or submitting a more complex application with Form 433-F, you must mail the documents to the correct IRS service center address, which can be found in the form’s instructions.

After submitting your application, the IRS will review it and send a letter within 30 to 60 days. This notice will inform you whether your request has been approved or rejected, or if additional information is needed. If approved, the notice will detail the terms, including the setup fee, your monthly payment amount, and the due date.