6 Practical Ways to Proceed When You Owe IRS Back Taxes

Industry Observer with Keith Jones, CPA TheCPATaxProblemSolver AC20867


If you owe back taxes and don't file on time, you are subject to failure-to-file and failure-to-pay penalties. and you'll be charged interest on unpaid balance.


In this article, we describe the repercussions of failing to file or file back taxes on time and your options when you owe the IRS money.

How to handle back taxes and IRS debt

Knowing your alternatives can help you decide what else to do when you are owing the IRS money. In this manner, you could devise a strategy. The following are the most popular options for those who owe money on IRS back taxes but are unable to pay.

How To Solve Back Taxes

Time Needed: 60 minutes

Total Cost: USD 69

Things Needed ?

-Quiet Time

Required tools:

- A Computer.

6 Practical Ways to Proceed When You Owe IRS Back Taxes:

1. Establish a payment plan with the IRS.

Installment settlements are payment schedules that taxpayers might set up with the IRS. The kind of arrangement you qualify for will depend on your circumstances. It includes things like how much you owe in back taxes and when you can make the remaining payments.

It would be best if you didn't establish an installment arrangement when you can pay the remaining payment in full after 120 days.

Cost: The registration price for digital payment arrangements is $149, or $31 if installments are paid digitally. For individuals with modest incomes, the cost is $43. Form 13844 requests a low-income processing fee for IRS back taxes.

What must be done: Fill out Form 9465 or a digital payment agreement. An income report is not required for payment deals of $50,000 or less. Additionally, you may hire a specialist to analyze your problem and choose the best course of action.

Benefits or drawbacks: When you set things up in an installment arrangement, the charge on your outstanding debt drops to 0.25 percent each month unless you repay the entire total according to schedule.

Interest is assessed at the national short-term level + 3%. Generally, the IRS Back Taxes may cancel contracts when you don't make your payments on time.

File 433-A and Document 433-F are needed if the amount is more significant than $50,000. You may make a payment via payroll taxes: direct payment arrangement, Form 2159.

Back Taxes Help
2. Request a short window of time to pay the total amount.

The IRS will give people almost 120 days to collect their whole back tax bill.

  • Cost: There is no charge for requesting the extension. The unpaid debt is subject to a 0.5 percent monthly penalty.

What must be done:

  1. Contact the IRS at (800) 829-1040.
  2. Fill out the online payment arrangement.
  3. Hire a professional to manage this.
  • Benefits or drawbacks: This method is practical for taxpayers who only have a limited time to settle their whole tax burden. 

The IRS back taxes will tack on credit at the national short-term total rate of 3%. (Every three months, interest may fluctuate.)  Using short-term renewals, you can save the registration cost for installment payments but not the missed payment interest charges.

3. Obtain an extension for paying back taxes due to hardship.

The IRS provides choices, such as the presently not collectible status and the proposal in the settlement, for people in difficult situations.

You will only be eligible for a hardship delay when you demonstrate that, according to IRS Back Taxes financial guidelines, paying higher taxes you owe might put you in a difficult financial situation.

Fees: There is no cost to request a hardship prolongation. There are no fines, although interest is computed at the national short-term rate plus 3%. (Every three months, interest may fluctuate).

What must be done: Apply for a time extension to pay the back taxes because of hardship using Tax Forms 1127. A list of your financial assets is required.

4. Apply for a personal loan.

You might request the financial assistance of a close friend or relative. Fees and expenses will differ significantly based on the lender. Although it could be a cheap choice, you should exercise caution.

5. Use your 401(k) as collateral.

When your 401(k) program allows this type of borrowing, you are usually limited to a 50% loan with a $50,000 maximum and five years to repay it.

Cost or fee: There may be a small charge. The strategy also has to include interest. For further information, speak with the plan manager.

Benefits and drawbacks: If it's legal, borrowing money through your 401(k) plan might be a quick and affordable way to cover any taxes you owe now or in the past. If you don't return a loan, it might harm your pension funds in the future.

When you don't complete regular payments of back taxes, quit your job without paying off the loan, and your plan expires, the loan is considered a prohibited payout. A taxable payout is also subject to the 10 percent premature transfer penalty unless you're under 59.5 years of age.

6. Use your debit or credit card.

There are several commercial entities for this choice that offer back tax help.

  • Fees or costs: Vary; typically between $2.49 and $3.95 (bank card) or 1.87 to 2.35 percent of the outstanding tax debt (credit card). What must be done: For a group of service companies, contact the IRS Back Taxes.
  • Benefits or drawbacks: This payment is practical and allows taxpayers with back taxes help and more control and repayment flexibility. 
  • It gives excellent IRS back tax relief. They might also earn points, mileage, or other incentives with their credit card. 

A higher account balance, meanwhile, could negatively influence your credit rating, and those with overwhelming consumer debt might not want to pay using credit.

Posted by
Keith L. Jones, CPA TheCPATaxProblemSolver 
Destin (850) 400-4808 
Direct (904) 467-0868 
Jacksonville (904) 464-8111 
St. Augustine (904) 420-0101 
Toll Free  (844) 888-1040 
Web KeithJonesCPA.com 
E Keith@KeithJonesCPA.com 
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Comments (1)

Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

This is an excellent post with great information. Thanks for sharing it.

Have a super fantastic week!
Joe Jackson, Realtor-KWCP

Aug 18, 2022 06:28 AM
Keith Jones, CPA

Thanks Joe! Have a great weekend!


Mar 11, 2023 05:09 AM