What Should I Do If I Can’t Afford to File My Taxes?

Filing taxes can be overwhelming, especially when financial challenges make it seem unaffordable. This common situation can create significant stress for individuals trying to meet their tax obligations.

Minimum Filing Requirements

Understanding the IRS’s minimum filing requirements is the first step in navigating tax obligations. These thresholds depend on factors like filing status, age, and gross income. For instance, in 2024, a single filer under 65 must file if their income exceeds $13,850, while married couples filing jointly must file if their combined income surpasses $27,700. These thresholds change annually with inflation, so staying informed is crucial.

Certain circumstances require filing even if income is below the threshold. Individuals who owe specific taxes, like the alternative minimum tax or self-employment tax, must file regardless of income. Those who received advance payments of the premium tax credit or earned income credit must reconcile these amounts on their returns. Being aware of these exceptions helps prevent unexpected obligations and ensures compliance with tax laws.

Consequences of Not Filing

Failing to file a tax return can result in significant financial penalties. The IRS charges a failure-to-file penalty, typically 5% of unpaid taxes for each month a return is late, up to 25%. This is separate from the failure-to-pay penalty, which accrues at 0.5% per month. These penalties can accumulate quickly, increasing the financial strain on taxpayers.

Interest on unpaid taxes compounds daily from the original due date, further inflating the debt. The interest rate, updated quarterly, is based on the federal short-term rate plus 3%, approximately 6% in 2024. These costs can significantly impact a taxpayer’s financial stability.

If a taxpayer does not file, the IRS may create a substitute for return (SFR) based on available information. This often results in a higher tax liability since deductions or credits are not applied, further complicating the taxpayer’s situation.

Options for Payment

For those unable to pay their taxes in full, the IRS offers several payment options to help manage obligations and avoid severe penalties.

Installment Agreements

An installment agreement allows taxpayers to pay their debt in monthly installments. Options include short-term plans (up to 180 days) and long-term plans (more than 180 days). While interest and penalties continue to accrue until the balance is paid, structured payments can prevent harsher collection actions. The IRS charges a setup fee for long-term plans, though this can be reduced or waived for low-income individuals. Applications can be submitted online using the IRS Online Payment Agreement tool.

Offer in Compromise

An Offer in Compromise (OIC) enables taxpayers to settle their debt for less than the full amount owed if they can prove financial hardship. The IRS evaluates factors such as income, expenses, asset equity, and ability to pay. To qualify, taxpayers must meet all filing and payment requirements and not be in an open bankruptcy proceeding. The application process requires submitting Form 656 and a $205 fee, which may be waived for low-income applicants. The IRS calculates the minimum offer amount based on the taxpayer’s reasonable collection potential (RCP).

Hardship Deferments

For temporary financial hardships, the IRS may classify a taxpayer’s account as “currently not collectible” (CNC), temporarily suspending collection efforts. While this status does not eliminate the debt, it provides relief until the taxpayer’s situation improves. Qualifying requires detailed financial documentation, including income, expenses, and assets. During CNC status, interest and penalties continue to accrue, and the IRS may file a Notice of Federal Tax Lien to secure its claim.

Potential Tax Liens and Garnishments

Unresolved tax debts can lead to tax liens and garnishments. A federal tax lien is a legal claim against a taxpayer’s property, ensuring the government’s priority as a creditor. This lien can damage credit scores and complicate asset sales or financing.

Garnishments allow the IRS to seize funds directly from wages, bank accounts, or other income sources to satisfy tax debt. The IRS can levy up to 25% of disposable income, leaving only a minimal amount for basic living expenses. These actions are typically a last resort after multiple notices and attempts to resolve the debt.

Low-Cost Filing Resources

For taxpayers facing financial challenges, several resources are available to help minimize filing costs. The IRS Free File program provides free online tax preparation and filing for individuals with an adjusted gross income of $73,000 or less. This service partners with private tax software companies to offer tailored solutions.

The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs provide free, in-person support for eligible individuals. VITA assists those earning $60,000 or less, persons with disabilities, and those with limited English proficiency, while TCE focuses on taxpayers aged 60 and older. Both programs are staffed by IRS-certified volunteers who offer basic tax preparation and electronic filing. Utilizing these resources can help taxpayers meet their obligations without incurring significant costs, avoiding penalties and interest tied to late or non-filing.