1. What is Tax Debt?

Tax debt refers to the amount of money an individual or business owes to federal or state tax authorities due to unpaid taxes. This can result from several situations, including failing to file required tax returns (unfiled returns), reporting less income than was actually earned (underreporting income), or not paying the full amount owed after filing a return (unpaid balances). When these issues occur, the IRS or state tax agencies may assess penalties and interest, increasing the total amount owed over time. Tax debt can accumulate across multiple tax years and often leads to enforcement actions such as wage garnishments, tax liens, or levies if not addressed promptly.

2. What happens if I don’t pay my tax debt?

The IRS enforces tax collection aggressively. If you ignore or can’t pay your tax debt, here’s what you might face:

· Penalties and interest: These begin accruing the day after your tax is due.

· Failure-to-pay penalty: 0.5% of unpaid taxes per month (max 25%)

· Interest: Variable rate (around 8% as of 2024), compounded daily

· Liens: A legal claim against your property to secure the debt.

· Levies: The IRS can seize your bank accounts, wages, or assets.

· Wage garnishment: A portion of your paycheck is sent directly to the IRS.

· Passport restrictions: If you owe more than $62,000 (2024 threshold), your passport may be revoked or denied.

· Credit consequences: Though tax debt doesn’t show directly on credit reports, liens used to.

3. Can I negotiate with the IRS myself?

Yes! You do not need a lawyer, enrolled agent, CPA, or tax firm to resolve your tax debt. Many individuals successfully handle their tax issues on their own by working directly with the IRS or state tax authorities.

Pros of resolving tax debt yourself:

• Saves Money:
  Hiring tax professionals or firms can be expensive, often costing hundreds or even thousands of dollars. By managing your tax debt on your own, you avoid these fees and keep more of your money.

• IRS Provides Clear Guidance:
  The IRS offers detailed instructions, forms, and online tools to help taxpayers understand their options and apply for relief. For example, you can use IRS Form 9465 to request a payment plan or Form 433-A for financial disclosure. Their website (IRS.gov) also includes plain-language explanations of various tax debt solutions, like installment agreements or offers in compromise.

• You Stay in Control:
  When you handle your case yourself, you’re fully informed and in direct contact with the IRS. You won’t have to rely on a third party to communicate on your behalf, which can speed up the process and prevent misunderstandings.

• Reduces Risk of Scams:
  Unfortunately, the tax resolution industry includes some bad actors who charge large upfront fees without delivering results. By managing your own case, you avoid the risk of being taken advantage of by predatory companies.

• Support Is Still Available:
  If you hit a roadblock, there are still resources you can turn to, such as the IRS Taxpayer Advocate Service—a free, independent organization within the IRS that helps taxpayers resolve issues. You can also find free help through programs like Volunteer Income Tax Assistance (VITA) and Low-Income Taxpayer Clinics (LITCs).

4. How can I set up a payment plan with the IRS?

The IRS offers Installment Agreements (IAs) for individuals who can’t pay their full debt immediately:

· Short-term plan (120 days or less):

· Long-term plan (more than 120 days):

· Streamlined agreements:

· Partial payment plans:

Apply through:

· IRS's Online Payment Agreement tool

5. Can tax debt affect my credit score?

Directly, no. The IRS does not report tax debts to credit bureaus. However, indirect effects can occur:

· Tax liens (prior to 2018) used to appear on credit reports, severely damaging scores.

· Levies and garnishments can affect your ability to meet other financial obligations, indirectly hurting your credit.

· Private collection agencies (used by the IRS in some cases) also don’t report to credit bureaus, but unpaid tax debt can lead to financial instability that impacts your borrowing ability.

6. Is tax debt dischargeable in bankruptcy?

Under specific circumstances, older income tax debt may be discharged in Chapter 7 or Chapter 13 bankruptcy:

Key rules (the “3-2-240” rule):

· 3 years since the tax return was due

· 2 years since the tax return was filed

· 240 days since the tax was assessed by the IRS

Other conditions:

· Debt must be from income taxes (not payroll or fraud penalties).

· You must not have committed tax fraud or willful evasion.

Note: Filing bankruptcy does not discharge tax liens that were filed prior to bankruptcy.

*For best advice, consult a bankruptcy attorney for in-depth or case specific questions

7. How do I know If I owe Tax Debt?

1. Log Into Your IRS Account:

The fastest way to see if you owe federal taxes is by logging into your personal account on the IRS website at irs.gov/account. Once logged in, you can:

2. Review IRS Mail Notices

The IRS sends letters by mail when you owe taxes. Common notices include:

• CP14: This is the first notice the IRS typically sends to inform you that you owe a balance.

• CP501 or CP503: These are follow-up reminders if the balance remains unpaid.

• CP504: A final notice before the IRS takes more serious action, like seizing assets or garnishing wages.

3. Check Your State Tax Portal

If you live in a state that collects income tax, you might also owe state taxes. Each state has its own tax authority and online portal. You can find your state’s tax website by searching “[your state] department of revenue” or visiting the Federation of Tax Administrators' site for links.

8. Will the IRS Take My House or Car?

It’s possible, but very unlikely for most taxpayers. The IRS does have the legal authority to seize property, including your home or vehicle, but this only happens in serious cases where a large tax debt is owed and you’ve ignored multiple notices and opportunities to resolve it.

Before taking such action, the IRS will send several warnings—including a Final Notice of Intent to Levy—and give you a chance to respond or appeal. In most cases, taxpayers can avoid property seizure by setting up a payment plan or working out another solution.

9. How long can the IRS Collect?

Generally, the IRS has 10 years from the date the tax is assessed to collect what you owe. This is known as the Collection Statute Expiration Date (CSED). After that, the debt typically expires and can no longer be legally collected.

However, this 10-year period can be paused (or “tolled”) under certain circumstances, such as:

• Filing for bankruptcy

• Submitting an offer in compromise

• Requesting a collection appeal

• Living outside the U.S. for an extended time

These actions temporarily stop the clock, which can extend the total time the IRS has to collect.

10. Can Tax Debt be Reduced or Forgiven?

Yes… But only for qualifying taxpayers. The IRS offers programs like Offer in Compromise (OIC), which may let you settle your debt for less than the full amount, and Currently Not Collectible (CNC) status, which temporarily halts collection if you can’t afford to pay.

Both options require a detailed financial review to prove hardship. These programs are not automatic and approval isn’t guaranteed.

Be cautious of companies that promise blanket “tax debt forgiveness”. These often charge high fees and deliver little. The IRS provides these options directly, and many people successfully apply on their own.

11. What is an IRS Payment Plan?

It's an official agreement that lets you pay your debt in monthly installments over time instead of in one lump sum. As long as you follow the terms, the IRS won’t take enforced collection actions like garnishing wages or taking money from bank accounts.

12. How do I Apply for an IRS Payment Plan?

You can apply using the IRS Online Payment Agreement tool, which is the fastest and most convenient method. You’ll need to verify your identity, know the balance, and select a payment amount and method (bank account for auto-pay is best). You can also apply by calling the IRS at (800) 829-1040 for Individuals and (800) 829-4933 for businesses, or submitting Form 9465 by mail, though that will take longer.

13. What if I Can’t Afford Monthly Payments to the IRS?

The IRS offers alternatives if you're experiencing financial hardship. This could include placing your account in "Currently Not Collectible" status (temporarily suspending collections), or an Offer in Compromise to settle for less. These options require financial disclosure forms and documentation to prove your situation. Only a few will qualify. Be cautious of anyone “selling” you on these programs.

14. What if I Miss a Monthly Payment to the IRS?

Missing a payment can cause your agreement to default, which might lead to additional fees, penalties, and aggressive collection actions. If you're in danger of missing a payment, reach out to the IRS right away. They may be able to modify your agreement or offer a temporary extension.

15. Can I Change or Cancel My IRS Payment Plan?

Absolutely. You can log into your IRS online account to adjust your monthly payment, change the due date, or switch to a direct debit method. If you want to pay off your balance early, there’s no penalty; and doing so may save you interest.