Tax Tip 2023-35: Options for taxpayers with a tax bill they can’t pay

Internal Revenue Service (IRS) sent this bulletin at 03/20/2023 01:04 PM EDT

IRS Tax Tips

March 20, 2023

Issue Number: Tax Tip 2023-35

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Options for taxpayers with a tax bill they can’t pay

Taxpayers who can’t pay their tax bill by the April 18, 2023, deadline shouldn’t panic. The IRS offers several options to help them meet their obligations.

It’s important for taxpayers to file their tax return or request an extension of time to file at irs.gov/extension by the April 18, 2023, deadline – even if they can’t pay their full tax bill. Doing so will help them avoid a failure-to-file penalty.

This extension applies only to the filing deadline, not the payment deadline. Except for eligible victims of recent natural disasters who have until Oct. 16 to make various tax payments, taxpayers who can't pay the full amount of taxes they owe by April 18 should file and pay what they can. Making a payment, even a partial payment, will help limit penalty and interest charges.

For taxpayers who cannot pay in full
Taxpayers struggling to meet their tax obligation may consider these payment options.

Online payment plans
Taxpayers who owe but cannot pay in full by April 18 don't have to wait for a tax bill to set up a payment plan. They can apply for a payment plan at IRS.gov/paymentplan. These plans can be either short- or long-term.

Short-term payment plan – The payment period is 180 days or less, and the total amount owed is less than $100,000 in combined tax, penalties and interest.
Long-term payment plan – The payment period is longer than 180 days, paid in monthly payments, and the amount owed is less than $50,000 in combined tax, penalties and interest.

Offers in compromise
An offer in compromise lets taxpayers settle their tax debt for less than the full amount they owe. It may be an option if they can't pay their full tax liability or doing so creates a financial hardship. The IRS considers a taxpayer’s unique set of facts and circumstances when deciding whether to accept an offer.

Taxpayers can see if they’re eligible and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

The IRS offers penalty relief to eligible taxpayers
Taxpayers may qualify for penalty relief if they tried to comply with tax laws but were unable due to circumstances beyond their control.

Here’s what taxpayers should know about possible penalties and interest
Taxpayers who owe tax and don't file on time, may be charged a failure-to-file penalty. This penalty is usually five percent of the tax owed for each month or part of a month that the tax return is late, up to 25 percent. The failure-to-pay penalty applies if a taxpayer doesn’t pay the taxes, they report on their tax return by the due date.

Interest is based on the amount of tax owed and for each day it's not paid in full. The interest is compounded daily, so it is assessed on the previous day’s balance plus the interest. Interest rates are determined every three months and can vary based on type of tax; for example, individual or business tax liabilities. More information is available on the interest page of IRS.gov.

An extension of time to file is not an extension of time to pay. An extension only gives taxpayers until October 16, 2023, to file their 2022 tax return, but taxes owed are still due April 18, 2023.

More information:
What if I can’t pay my taxes?
What Is the Due Date of My Federal Tax Return or Am I Eligible to Request an Extension?
Tax Topic 653, IRS Notices and Bills, Penalties, and Interest Charges

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Tax Tip 2023-35: Options for taxpayers with a tax bill they can’t pay

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Issue Number: Tax Tip 2023-35