4 Options for Taxpayers Who Can’t Pay Their Tax Bill in Full

You filed your tax return, and even if you couldn’t pay in full, you paid something. That’s a smart first move. It shows the IRS you’re making an effort and helps reduce the penalties that stack up fast when you do nothing.

Now it’s time to figure out how to deal with the remaining balance.

In this post, I’m breaking down 4 IRS payment options for taxpayers who can’t pay in full, so you can stay compliant, minimize penalties and interest, and avoid more serious consequences like liens, levies, or collection action.

Option 1 -  Short-Term Payment Plan (180 Days or Less)

Best for: Those who need a little time and will have the money soon.

If you can pay off your full balance within the next six months, a short-term payment plan is the simplest option. You don’t need a formal agreement, and there are no setup fees. You can apply online through your IRS Online Account and receive immediate approval.

Here’s what to know:

• You must owe less than $100,000 in combined taxes, penalties, and interest.

• $0 setup fee

• Penalties and interest will still accrue until the balance is paid in full

• Payments can be made manually by check, debit/credit card, or through Direct Pay.

Why this works: It buys you time without locking you into a long-term agreement — and it’s free to set up if you apply online.

Option 2 - Long-Term Installment Agreement

Best for: Those who need more than 180 days to pay and want to spread the payments out.

If the balance is too high to pay off quickly, this is your go-to option. You can stretch payments out over several months or even years, depending on your situation.

Here’s what to know:

• You must owe $50,000 or less in combined tax, interest, and penalties and have filed all required returns to apply online.

• Monthly payments can be set up as:

• Direct Debit (DDIA): $22 setup fee (waived for low-income individuals)

• Manual monthly payments: $69 setup fee (or $43 for low-income applicants, possibly reimbursed)

• Interest and penalties continue until the balance is paid I full

• Applying online costs less than applying by phone, mail, or in person.

Why this works: It offers manageable monthly payments and lower setup fees if done online, plus it helps keep you in good standing with the IRS.

No matter which payment plan option you choose, once the online application is complete, the taxpayer is notified immediately whether their plan is approved. There’s no paperwork or need to call, write, or visit the IRS.

If neither of the first two payment plans is financially realistic right now, there are still options that can give you some breathing room while keeping you in compliance.

Option 3 - Currently Not Collectible (Temporary Delay of Collection)

Best for: Those whose financial situation makes it impossible to pay anything right now.

If you're unemployed, on a fixed income, or experiencing serious financial hardship, the IRS may temporarily pause collections.

Here’s what to know:

• You’ll need to prove financial hardship (this usually means submitting Form 433-A or 433-F).

• Your balance doesn’t go away, but penalties and interest keep accruing.

• The IRS will review your situation periodically to see if things have changed.

Why this works: It relieves pressure when you're in survival mode, giving you space to recover financially.

Option 4 - Offer in Compromise (Settle for Less Than You Owe)

Best for: For those with no realistic way to pay the full amount, now or in the future.

This option lets you settle your tax bill for less than you owe. But it’s not for everyone — the IRS only accepts offers when it’s clear they wouldn’t reasonably collect the full amount based on your income, assets, and expenses.

Here’s what to know:

• It’s a rigorous application (Form 656 + financial disclosures).

• There’s a $205 application fee and an initial payment (unless you qualify for low-income status).

• The IRS considers your reasonable collection potential, not just what you want to pay.

Why this works: If approved, it can wipe out a portion of your tax debt — permanently.

How to Choose the Right IRS Payment Option

Each of these options has pros, cons, and eligibility requirements. So, how do you know which one to pick?

Here’s a quick breakdown:

Situation Option to Consider

You’ll have the funds within 6 months Short-term plan

You need time and structure Installment agreement

You can’t pay anything now Currently not collectible

You’ll never realistically be able to pay in full Offer in compromise


🎥 Want to see how to actually apply for an IRS payment plan?
Check out my step-by-step video below where I walk you through the process.

Don’t Ignore Your Tax Debt — Make a Move

Ignoring your balance won’t make it go away — and it’ll only make the penalties worse. The IRS is far more willing to work with people who are trying to resolve their balance than those avoiding it.

If you're overwhelmed and unsure what to do, don't wing it.

📞 Book an Accounting Needs Consultation — we’ll help you figure out what the IRS will accept, what your next move should be, and how to avoid being in this situation again.

Disclaimer: The content on this blog is for informational purposes only and does not constitute professional financial advice. While I am an accountant and enrolled agent, the information here should not be relied upon without seeking advice from a professional tailored to your individual circumstances. I disclaim any liability for actions taken based on the content of this blog.