Collection FAQs

It is important that you only pay what you owe. You may have options to reduce the amount you owe, depending on your circumstances that led to your tax bill. Filing an amended return to correct a previously filed return is one option. If the amount you owe came from an audit, audit reconsideration may be a possibility. Reducing penalties through penalty abatement is also something to consider.

What are the penalties for not paying back taxes?

There are IRS penalties and interest for late payments and for late filing.

• The late-payment penalty is 0.5% per month or partial month that a tax debt goes unpaid. The good news: This penalty can’t exceed 25% of the total taxes you owe. The bad news: The late-filing penalty is worse. It applies to the balance of your unpaid taxes as of the filing deadline, usually April 15.
• The late-filing penalty is 5% for each month or partial month that your tax return is late, with a maximum penalty of 25% of owed taxes. The clock starts at your tax deadline, and the penalties add up, or accrue, until you file.

The more time that passes, the more you owe. If you don’t file within 60 days of the return due date (including extensions), you'll owe $435, or a penalty equal to 100% of what you owe, whichever is less.

Interest is added to any unpaid tax, from the time the payment was due until the tax is paid. Interest is calculated for each day your balance is not paid in full, and is assessed on the amount of taxes due plus any late-filing or late-payment penalties.

Double whammy: If you file late (without requesting an extension) and you owe taxes, the maximum for the total associated penalties can be as high as 47.5% of the tax due—22.5% for late filing and 25% for late payment.

Can I file an extension if I owe back taxes?

Yes, but it won’t affect the taxes you owe. Asking for an extension to file your taxes means you’ll have six more months to prepare them. But if you owe money, the IRS immediately starts charging interest and potentially penalties after the filing deadline. Even if you can’t file on time, you should estimate what you owe and pay what you can right away.

Will the IRS forgive my tax debt after a certain amount of time?

The IRS has 10 years to collect taxes before they write off the bill. The final date to collect is known as the collection statute expiration date. Usually, once that date is passed, the IRS has no choice but to write off your debt. But beware, there are exceptions: The IRS can extend your collection statute in certain situations, like when you request a Collection Due Process hearing, apply for an offer in compromise, or file for bankruptcy. You can call the IRS to find out your collection statute expiration date. This information is available only by contacting the IRS directly.

Can I do anything about all those penalties?

The IRS does offer relief for some penalties, including:

• Failing to file a return
• Failing to pay on time
• You could qualify for penalty relief if you meet one of the 5 reasons the IRS cancels (abates) penalties. If the IRS denies your request for penalty relief, you can appeal its decision.

What about relief from interest?

The IRS can’t get rid of interest. The law requires the IRS to charge interest until you pay all the taxes you owe. However, if you get any of your penalties or taxes reduced, this will automatically reduce related interest.

Does the IRS offer payment plans for paying back taxes?

The simple answer is yes. The IRS has several payment plan options. 

Is there a minimum monthly payment for an installment plan?

Your minimum monthly payment depends on what you owe and the type of payment plan you request. The IRS has two categories of payment plans: 

• Simple payment plans (like the guaranteed installment agreement, the streamlined installment agreement, or the full-pay non-streamlined installment agreement)
• Ability-to-pay payment plans (based on your finances).

Simple payment plans have minimum payment amounts. Ability-to-pay payment plans are based on an analysis of your ability to pay your tax bill with your assets, income, and allowable expenses.

Would the IRS ever agree to let me pay less than what I owe in back taxes?

Yes, in certain circumstances. You may qualify for a settlement (called an offer in compromise) if you have financial hardship (in assets and income) that would mean you likely will never be able to pay your tax bill, before the time the IRS has to collect it expires. Each year, few taxpayers qualify to settle their tax bill. For example, in 2020, over 20 million taxpayers owed the IRS, but only 13,000 qualified and received a settlement of their tax bill. Taxpayers should always look at their best option to resolve tax debt, including payment plans and other hardship options.

Should I take out a personal loan to pay my back taxes?

A personal loan is one way to approach tax debt. You can borrow money from a private lender to pay the IRS–it’s likely that the interest on the loan will be much lower than the interest and penalties the IRS charges. Then, all you have to do is make the monthly loan payments, without progressing to IRS collection enforcement actions like wage garnishment, bank account levies, or tax liens.

Can I pay my back taxes with a credit card?

The IRS accepts all major credit cards. The biggest downside is the card processing fees you’ll be charged for the transaction. You’ll pay nearly 2% of the transaction total on top of what you’re already paying. Also, keep in mind your credit card’s interest rate and how quickly you can pay off your balance.

What other ways can I pay the IRS?

The recommended payment method is Direct Pay via your bank account. The IRS also accepts payments with:

• Digital wallet
• Electronic Federal Tax Payment System (best for businesses or large payments; enrollment required)
• Electronic funds withdrawal (during e-filing)
• Same-day wire (bank fees may apply)
• Check or money order
• Cash (at a retail partner)

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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