Even if you cannot pay your federal taxes in full by the April deadline, you need to file your tax return or request an extension and pay what you can to avoid failure-to-file and failure-to-pay penalties.
When you owe taxes you cannot pay all at once, the IRS offers debt relief to help resolve your back taxes over time. We will review each type of relief and how you can qualify in 2024.
Offer in Compromise
With an Offer in Compromise (OIC), you may be able to settle your tax debt for a fraction of what you owe when you have financial hardship.
To qualify for an Offer in Compromise in 2024, the IRS will evaluate your ability to pay and how much they can collect based on your income, expenses, and any other assets.
To apply for an OIC, you must submit Form 656 and Form 433-A (individual) or Form 433-B (business), pay a $205 application fee, and:
- File all required tax returns
- Have an extension for the current tax year (if you have not filed)
- Make all estimated tax payments
- Not be actively pursuing bankruptcy
Employers may also qualify for OICs, but they must have made tax deposits for the most recent and last two quarters before submitting an offer.
You can check your Offer in Compromise eligibility with the free Wiztax pre-qualifier tool at https://www.wiztax.com/pre-qualifier/.
Installment Agreement
You may also qualify for an installment agreement to pay off your IRS debt with monthly payments.
There are four types of IRS installment agreements in 2024:
1. Guaranteed Installment Agreement
If you owe the IRS $10,000 or less and have not had another installment agreement in the last five years, you can apply for a guaranteed installment agreement to pay your back taxes (plus penalties and interest) over three years.
2. Streamlined Installment Agreement
Streamlined agreements help with tax debt up to $100,000. Monthly payments will be deducted through direct debit from your bank account. Individuals will have up to 72 months to pay off the tax balance.
3. Non-Streamlined Installment Agreement
Non-streamlined agreements are for individuals who owe more than $50,000. These agreements are more flexible, but also require more financial documentation.
4. Partial Payment
Taxpayers who do not get approved for an Offer in Compromise may request a partial payment install agreement (PPIA). Under this program, you may qualify to have the IRS reduce your total tax debt and for smaller monthly installment amounts.
With these monthly tax payment plans, there are varying fees for setup and both short-term (less than three months) and long-term (up to six years) agreements.
You should also note that you will need to stay current with any new tax obligations during the term of your installment agreement. Failing to pay any new taxes in full can lead to the IRS cancelling your payment plan.
Currently Not Collectible
If the IRS agrees that you cannot afford to pay any taxes now, you may qualify for “currently not collectible” (CNC). The IRS will temporarily delay collections until your financial situation approves.
If you are eligible for CNC in 2024, the debt does not go away and penalties and interest will accrue until the full debt is paid.
Spouse Relief
If you are filing a joint tax return with your spouse, some IRS debt relief programs can help you when you are on the hook for the spouse’s tax debt.
Innocent Spouse
You may qualify for relief for federal taxes owed by your spouse from errors made on a joint tax return. For example, if your spouse understated the taxes due on your joint return and you did not know about the error.
Innocent spouse tax debt relief is only applied to your spouse’s income and not yours.
Injured Spouse
Injured spouse relief can help you get your portion of a tax refund back that was applied to your spouse’s IRS taxes or other debts, such as past due child support or unpaid state taxes.
First-Time Penalty Abatement
If you owe a tax penalty in 2024, and it is the first time the IRS assessed you a penalty, you may qualify for an administrative waiver.
The IRS will review your case if you have what it considers previous good tax compliance, such as:
- Filing the same tax return type for the past three years before you got the penalty
- Did not receive any penalties during the previous three years
If the IRS determines you are eligible, they may waive penalties for failure to file, pay, or deposit.
Federal Tax Lien Withdrawal
If you fail to pay your taxes and owe more than $10,000, the IRS can place a tax lien on your property. If you have made significant progress to pay down your tax debt in 2024 or a significant financial hardship exists, the IRS may withdraw the lien.
Normally, the IRS wants you to be on an installment agreement with direct debit payments and have at least three on-time payments before they will consider lien withdrawal.
How Can Wiztax Help?
Wiztax can review the specifics of each IRS debt relief program with you and determine what relief you qualify for. You can start online by answering 6 simple questions.
6 Simple Questions. Free Evaluation.