How To Pay Your Back Taxes And Get Relief: The Forbes Advisor Guide (2024)

Many Americans struggle to pay off back taxes. According to the latest IRS data, taxpayers owed more than $133 billion to the tax agency in the fall of 2021, at the end of a government fiscal year.

But if you’re among the millions who are in debt to the IRS, you might be able to get a break—through tax relief. Here’s what you need to know about the relief that’s available when you’re having trouble paying a tax bill.

What Are Back Taxes?

Back taxes are any tax money that’s owed to the IRS or state and local tax agencies. The sooner you pay your back taxes, the better off you’ll be, because interest and penalties can cause tax debt to grow over time.

You may owe back taxes for many reasons, including:

• You didn’t withhold enough taxes from your paycheck or other earnings.
• You were self-employed but didn’t pay your estimated taxes.
• You made an unexpected profit on investments you sold, such as stock, real estate or cryptocurrency.

What Is Tax Relief?

Tax relief is a catch-all term for the government programs or policies that help taxpayers reduce their tax burden.

In the broadest sense, tax relief may include tax deductions, credits or exclusions that can lower your tax bill. There’s also special tax relief, often extended to Americans devastated by natural disasters.

“Several other types of tax relief allow people to settle tax debts in manageable ways,” says Alton Bell II, founder of Bell Tax Accountants & Advisors in Chicago.

His firm helps win relief for clients who may be overwhelmed by the back taxes they owe.

How Does Tax Relief Work?

Tax relief programs vary by the amount of tax debt owed and the taxpayer’s ability to pay, says Bell.

“There is not a one-size-fits-all program that is best for each taxpayer’s situation,” he says. “I recommend the taxpayer visits IRS.gov to determine which program works best for their situation.”

Tax relief may offer you more time to pay, or help you settle a tax debt for less than the amount you owe.

While the IRS offers several relief options, here are three you should consider if you owe back taxes.

1. Short-Term Payment Plans

An IRS short-term payment plan may be available to you if you owe less than $100,000 in combined taxes, penalties and interest.

You’ll get up to 180 days to pay your bill in full, and taking advantage of the extra time won’t cost you any fees. But penalties and interest will continue to accrue until your balance is paid off.

You can request a short-term payment plan by applying online or by calling the IRS at 800-829-1040.

Read More: How To Reach The IRS With Questions About Your Taxes

2. Installment Payment Plans

If you can’t pay your taxes in full immediately—or within 180 days—you can request an installment agreement, which will allow you to make monthly payments over a longer stretch of time. Typically, there are fees.

One example of how these installment plans work is what the IRS calls a long-term streamlined installment agreement. It generally allows you to stretch out payments over 72 months if you owe less than $50,000.

You can request an installment agreement by applying online; by submitting an IRS Form 9465, Installment Agreement Request; or by calling 800-829-1040 for individuals and 800-829-4933 for businesses.

Offer in Compromise

An offer in compromise (OIC) is an agreement you make with the IRS that reduces your tax debt. As the name implies, you offer to pay the IRS part of what you owe, and the tax agency agrees to forgive the rest—as a compromise.

Here’s how it works: Let’s say you owe the IRS $50,000; you offer $10,000 to satisfy your debt. If the IRS accepts your offer, the remaining $40,000 debt ($50,000 minus $10,000) will be wiped clean.

To determine whether you qualify, the IRS will review your ability to pay, income, expenses and “asset equity”—the value of your assets minus any liabilities.

You’ll be charged a nonrefundable application fee of $205. The fee can be waived if you are a low-income taxpayer.

To be eligible for an offer in compromise, you must first answer a series of questions using the IRS OIC Pre-Qualifier tool. It will want to know that you’re up to date on all your tax returns (or have filed a valid extension) and have made all required estimated tax payments.

If you own a business with employees, you must be able to say that all your federal tax deposits—that is, payroll taxes—have been made for the current and past two quarters.

The tool also will ask if you’re in an open bankruptcy proceeding, which would disqualify you from an offer in compromise.

IRS ‘Currently Not Collectible’ Status

If you can’t afford to pay what you owe the IRS, you can request that your account be placed in “currently not collectible” (CNC) status.

While your account is under that designation, the IRS won’t try to collect your taxes. However, penalties and interest may continue to accrue, and your debt won’t go away. If you find you’re due a tax refund while your tax debt is on hold, the IRS will apply it to the amount you owe.

To qualify for CNC status, you must file any past due tax returns and provide the IRS with financial information, including details about your income and expenses.

Once your account is labeled as CNC, the IRS will review your finances annually. If your financial situation improves, the IRS may try to collect the balance owed. Generally, the tax agency has up to 10 years to collect taxes due.

You Could Hire a Tax Relief Company

You may be tempted to hire a tax relief company to assist with shaking your tax debt. These businesses provide services to help people get rid of back taxes. The companies claim they can eliminate tax debts and stop IRS tax collections.
Some tax relief companies are legitimate, but consumer watchdogs warn that many tax relief services are fronts for scam artists.

How Do Tax Relief Companies Work?

“Taxpayers should do their due diligence on any tax relief company, by reviewing its credentials and track record before moving forward,” says Bell.

While the companies advertise that they can help taxpayers struggling with tax debts, they often don’t deliver on their promises, says the Federal Trade Commission.

“The truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned,” the FTC says on its website.

In complaints filed with the agency, unhappy consumers have said they paid thousands of dollars to tax relief companies and were left further in debt and unable to obtain refunds.

Before you pursue any type of tax relief, it’s best to speak with a tax professional or certified public accountant (CPA) about the programs that may be available to help you get rid of your tax debts.

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