Let’s be real for a second—if you’re here, you’re probably feeling pretty stressed about money you owe the IRS. Maybe you got a scary letter in the mail. Maybe your tax bill is way bigger than you expected. Or maybe you’re worried they’re going to garnish your paycheck or freeze your bank account.
Take a deep breath. You’re not alone, and you actually have more options than you might think.
Over 10 million Americans owe back taxes to the IRS right now. The average debt? Around $15,000-$30,000. Some owe way more. And here’s the thing most people don’t know: the IRS doesn’t actually want to make your life miserable. They just want to get paid—even if it takes time, even if it’s less than the full amount.
In this guide, I’m going to walk you through 7 legitimate ways to deal with IRS debt in 2025. Some let you pay over time. Some can reduce what you owe. And yes, some might even let you settle for “pennies on the dollar” (though that phrase gets thrown around way more than it should).
We’ll keep this friendly and straightforward—no confusing tax jargon, no scary legal talk. Just real options for real people who need help.
First Things First: What Happens If You Just… Don’t Pay?
I get it. Ignoring the problem feels easier than dealing with it. But here’s what actually happens when you don’t respond to IRS notices:
Interest keeps piling up. Right now, the IRS charges 7% annual interest on unpaid taxes. That’s compounded daily, which means $10,000 becomes $10,700 after one year, $11,449 after two years, and so on.
Penalties get added. The IRS tacks on a 0.5% late payment penalty every single month. That’s another $600 per year on a $10,000 debt.
They can garnish your wages. The IRS can take money directly from your paycheck without going to court first. We’re talking 25-50% of your take-home pay in some cases.
They can levy your bank account. One day your account balance is fine, the next day it’s frozen and the money is gone.
They can put a lien on your property. This makes it nearly impossible to sell your house or car until the debt is paid. It also shows up on your credit report.
The good news? If you reach out to the IRS and set up any kind of payment arrangement, they generally stop these aggressive collection actions. Even a simple payment plan can give you breathing room.
Option #1: Short-Term Payment Plan (Pay in 180 Days or Less)
If you owe less than $100,000 and you’re pretty sure you can pay it off within 6 months (180 days), this is your simplest option.
How it works: The IRS gives you up to 180 days to pay your full balance. You can pay it all at once when you get money, or make several payments over the 6-month period.
The cost: There’s no setup fee for short-term plans. That’s right—free. But interest and penalties keep adding up until you pay the full amount.
Who this works for: People waiting on a bonus check, tax refund from another year, inheritance, or who can scrape together the money by cutting expenses temporarily.
Real example: Sarah owes $8,500 in back taxes. She knows she’s getting a $12,000 bonus in July. She sets up a short-term payment plan in February, makes small payments ($500-$1,000) each month, then pays off the remaining balance when her bonus hits. No setup fees, no long-term commitment.
How to set it up: Go to IRS.gov and use the Online Payment Agreement tool. Takes about 10 minutes. You can also call the number on your IRS notice.
Option #2: Long-Term Payment Plan / Installment Agreement (Up to 10 Years)
This is the most common solution for people who owe the IRS money they can’t pay right away. It’s basically like a car payment—you pay a fixed amount every month until the debt is gone.
How it works: If you owe $50,000 or less, you can spread payments over up to 10 years (or until the IRS’s collection statute expires, whichever comes first). Your monthly payment is based on how much you owe divided by the number of months.
The cost: There’s a setup fee ranging from $31 to $225 depending on how you pay and your income level. If you’re low-income (basically making at or below 250% of the federal poverty level), you might get the fee waived entirely.
Monthly payment example:
- Owe $15,000 → About $200-250/month for 6 years
- Owe $30,000 → About $400-500/month for 6 years
- Owe $50,000 → About $700-850/month for 6 years
Who this works for: People with steady income who can afford a monthly payment but can’t pay the full amount right now.
The catch: Interest and penalties still accumulate, so you’ll end up paying more than what you originally owed. But honestly? That’s better than having your wages garnished or bank account levied.
How to set it up: Use the IRS Online Payment Agreement tool at IRS.gov. If you set up automatic payments from your bank account (direct debit), the setup fee is lower ($31 instead of $130-$225).
Option #3: Currently Not Collectible Status (Temporary Pause on Collections)
This one’s a lifesaver if you’re genuinely broke right now. The IRS can put your account in “Currently Not Collectible” (CNC) status, which basically means “we know you can’t pay anything right now, so we’re backing off.”
How it works: You prove to the IRS that paying anything toward your tax debt would leave you unable to afford basic living expenses (rent, food, utilities, necessary medical care). They temporarily stop all collection activity—no calls, no letters demanding payment, no garnishments.
The cost: Free. No setup fees.
What happens to your debt: It doesn’t go away. Interest and penalties still accumulate. But here’s the secret weapon: the IRS only has 10 years from the date they assessed the tax to collect it. If you can stay in CNC status or on a very low payment plan for long enough, some or all of your debt might expire.
Who this works for: People who are unemployed, on disability, facing serious medical issues, or barely scraping by financially.
Real example: Mike lost his job and is living on $1,200/month unemployment. His rent is $800, food and utilities are $350, leaving him $50 for everything else. He owes $22,000 to the IRS. He applies for CNC status, provides his bank statements and bills, and the IRS agrees he can’t pay anything right now. Collections stop. Two years later when he’s working again, the IRS contacts him to set up a payment plan, but he’s had two years of breathing room.
How to get it: Call the IRS (use the number on your notice) and explain your financial situation. Be prepared to fill out Form 433-F (Collection Information Statement) showing all your income and expenses.
Option #4: Offer in Compromise (The “Pennies on the Dollar” Deal)
Okay, this is the one you’ve probably heard about on late-night TV commercials. Yes, it’s real. No, it doesn’t work for everyone. Let’s break down the truth.
How it works: An Offer in Compromise (OIC) is when the IRS agrees to accept less than the full amount you owe as payment in full. The IRS will settle for less if they believe it’s the most they can realistically collect from you.
The formula: The IRS calculates your “Reasonable Collection Potential” by adding up:
- The equity in your assets (home, car, retirement accounts, etc.)
- Your monthly disposable income × 12 months (for lump-sum offers) or × 24 months (for payment plans)
If that number is way less than what you owe, you might qualify.
Real examples that worked:
Example 1: Someone owed $200,000 but became disabled and had only Social Security Disability as income. No assets, no ability to work. The IRS accepted $100 to settle the entire debt. That’s literally pennies on the dollar.
Example 2: A person owed $47,000 but was 62 years old, earning $2,300/month on SSDI, renting (no home equity), and driving an old car. The IRS accepted $3,500. That’s about 7 cents on the dollar.
The cost: $205 application fee plus you have to make an initial payment with your offer (either 20% upfront for lump-sum offers or your first proposed monthly payment for periodic offers). These fees are non-refundable even if the IRS rejects your offer.
Who this works for: People who genuinely cannot pay and have limited assets. Seniors on fixed income, disabled individuals, people who’ve gone bankrupt, those with serious medical conditions.
Who it doesn’t work for: If you own a house with equity, have retirement savings, or make decent money, the IRS probably won’t accept a low offer because they know they could collect more over time.
The harsh reality: The IRS only accepts about 40-50% of Offer in Compromise applications. Many tax relief companies promise “pennies on the dollar” settlements, charge you $3,000-$5,000 upfront, and then your offer gets rejected because you didn’t actually qualify.
How to check if you might qualify: The IRS has a free Offer in Compromise Pre-Qualifier tool on their website at IRS.gov. Use this BEFORE paying any tax relief company. It takes 15-20 minutes and gives you a realistic idea of whether you have a shot.
Option #5: Partial Payment Installment Agreement (PPIA)
This is like the secret middle ground between a regular payment plan and an Offer in Compromise. It doesn’t get talked about much, but it’s incredibly powerful.
How it works: You make monthly payments based on what you can actually afford, not based on the total debt. The IRS only has 10 years to collect from the date they assessed the tax. If you can’t pay the full amount in that time with affordable payments, they’ll let you pay what you can until time runs out. Then the remaining balance disappears.
Real example: You owe $80,000 to the IRS. The taxes were assessed in 2020, so the IRS’s collection period ends in 2030 (10 years later). That’s 10 years from now. Based on your income and expenses, you can afford $200/month. Over the remaining time, you’ll pay about $24,000. The other $56,000? Gone when the 10-year statute expires.
The key difference from a regular payment plan: In a regular installment agreement, your payment is calculated to pay off the FULL debt. In a PPIA, your payment is calculated based on what you can afford, and if that doesn’t pay it all before the statute expires, the IRS accepts that.
Who this works for: People who owe way more than they can realistically pay off, but who have some income and can make monthly payments. It’s perfect for folks who don’t qualify for an Offer in Compromise because they make “too much” money or have some assets.
The fine print: The IRS will likely file a tax lien against you (shows up on your credit), and you’ll have to provide updated financial information every 2 years to make sure your payment amount is still accurate.
How to get it: You’ll need to fill out Form 433-F and probably work with a tax professional to present your case. This one’s trickier to do on your own.
Option #6: Innocent Spouse Relief (If It’s Not Actually Your Debt)
Sometimes you owe taxes because of your spouse’s or ex-spouse’s actions, and you had nothing to do with it. That’s not fair, and the IRS actually agrees.
How it works: If you filed a joint tax return with someone and it turns out they lied, hid income, or claimed deductions they weren’t entitled to—and you didn’t know about it—you can apply to have the tax debt removed from your shoulders entirely.
The three types:
1. Innocent Spouse Relief: You didn’t know about the errors and it would be unfair to hold you responsible.
2. Separation of Liability: You’re now divorced or separated, and you want the debt split based on who actually earned the income or claimed the deductions.
3. Equitable Relief: You don’t qualify for the other two, but it would be unfair to hold you responsible (like if your ex-spouse controlled all the finances and you signed returns without understanding them).
Who this works for: People who got screwed over by a spouse or ex-spouse who lied on tax returns, hid income, or claimed fraudulent deductions.
Real example: Jane’s ex-husband ran a business and filed their joint tax returns. Turns out he underreported income by $100,000 and never told Jane. They’re now divorced. Jane applies for Innocent Spouse Relief, proves she didn’t know about the underreported income and didn’t benefit from it. The IRS removes the tax debt from her name entirely. Her ex is still on the hook for all of it.
How to get it: File Form 8857 (Request for Innocent Spouse Relief). There are deadlines—you usually have to file within 2 years of the IRS first trying to collect from you.
Option #7: Bankruptcy (The Nuclear Option)
I’m putting this last because it’s serious and not right for most people. But in some situations, bankruptcy can actually wipe out tax debt.
The rules: Tax debt CAN be discharged in bankruptcy, but only if it meets all these requirements:
- The tax debt is from income taxes (not payroll taxes, fraud penalties, etc.)
- You filed a tax return for that year at least 2 years before filing bankruptcy
- The tax debt is at least 3 years old (from the original due date of the return)
- The IRS assessed the tax at least 240 days before you file bankruptcy
- You didn’t commit fraud or intentionally evade taxes
Who this works for: People with old tax debt (3+ years) who also have other massive debts (credit cards, medical bills, etc.) and need a fresh start.
Who it doesn’t work for: Recent tax debt, anyone who didn’t file tax returns, or anyone who only owes taxes (bankruptcy is expensive and complicated—you wouldn’t do it just for $10,000 in old taxes).
Real example: John owes $35,000 in income taxes from 2019 and 2020. He also has $60,000 in credit card debt and $40,000 in medical bills. He filed all his tax returns on time, and it’s now 2025. The tax debt is old enough to qualify for discharge in bankruptcy. He files Chapter 7 bankruptcy. The credit cards, medical bills, AND the old tax debt all get wiped out. Fresh start.
The serious downside: Bankruptcy destroys your credit for 7-10 years and is public record. It’s the nuclear option. Only consider this if you’re drowning in multiple types of debt, not just taxes.
How to Stop IRS Wage Garnishment Right Now
If the IRS is already taking money from your paycheck, you need to act fast. Here’s what actually works:
1. Set up any payment arrangement immediately. Even a basic installment agreement will usually stop a wage garnishment within 30-60 days. Call the IRS at the number on your garnishment notice and say “I want to set up a payment plan to stop the wage garnishment.”
2. Show you can’t afford basic living expenses. If the garnishment is taking so much money that you can’t pay rent or buy food, fill out Form 433-F showing your actual expenses. The IRS might reduce or stop the garnishment.
3. Apply for Currently Not Collectible status. If you’re truly broke, CNC status stops all collection activity including garnishments.
The reality: Wage garnishment doesn’t stop instantly. It takes 30-90 days after you set up a payment plan for your employer to get the IRS’s release notice and stop taking money from your check. But it WILL stop if you take action.
How to Remove or Prevent an IRS Tax Lien
A federal tax lien is public record that the IRS has a legal claim to your property because you owe taxes. It shows up on credit reports and makes it nearly impossible to sell your house or car.
How to prevent a lien: Set up a payment plan BEFORE the IRS files the lien. If you owe less than $50,000 and set up a direct debit installment agreement, the IRS generally won’t file a lien.
How to remove a lien that’s already filed:
Option 1: Pay off the debt completely. The IRS releases the lien within 30 days of final payment.
Option 2: “Lien Withdrawal” through Direct Debit Installment Agreement. If you owe $25,000 or less and set up a direct debit payment plan, you can request that the IRS withdraw (not just release) the lien. This removes it from public records.
Option 3: Offer in Compromise. If the IRS accepts your OIC and you meet the payment terms, they’ll release the lien.
Option 4: Wait until the debt is paid or expires. Not ideal, but liens automatically release when the debt is satisfied or the 10-year collection statute expires.
Should You Hire a Tax Relief Company?
Here’s my honest take: most people can handle IRS payment plans themselves for free using the IRS’s online tools. But some situations are complicated enough that professional help is worth it.
When you DON’T need a tax relief company:
- You owe less than $50,000
- You have steady income and can afford monthly payments
- Your financial situation is straightforward
- You just need a basic installment agreement
When professional help might be worth it:
- You’re trying to qualify for an Offer in Compromise
- The IRS is already garnishing your wages or levying your bank account
- You owe more than $100,000
- Your financial situation is complicated (self-employed, multiple income sources, etc.)
- You’re considering bankruptcy
- You’re trying to prove innocent spouse relief
Red flags of scam tax relief companies:
- They guarantee they can settle your debt for “pennies on the dollar” before even looking at your finances
- They charge huge upfront fees ($3,000-$5,000+) before doing any work
- They pressure you to pay immediately and discourage you from using the IRS’s free tools
- They claim to have “insider connections” at the IRS (not a thing)
- They don’t have actual tax attorneys or CPAs on staff
If you do hire help: Look for licensed tax attorneys, CPAs, or enrolled agents. Check reviews. Get everything in writing. And never pay massive upfront fees before they’ve actually reviewed your situation.
Quick Action Plan: What to Do Right Now
If you’re feeling overwhelmed, here’s your step-by-step game plan:
Step 1: Don’t panic. Seriously. You have options. The IRS isn’t going to show up at your door tomorrow.
Step 2: Figure out exactly how much you owe. Log into your IRS account at IRS.gov or call them to get the current balance including interest and penalties.
Step 3: Look at your budget. How much can you realistically afford to pay per month? Be honest. Don’t promise $500/month if you can only afford $200.
Step 4: Pick your strategy:
- Can pay in 6 months? → Short-term payment plan
- Can pay in 6-10 years? → Regular installment agreement
- Can’t pay anything right now? → Currently Not Collectible
- Genuinely can’t ever pay the full amount? → Consider Offer in Compromise or Partial Payment Installment Agreement
- It’s someone else’s debt? → Innocent Spouse Relief
Step 5: Take action TODAY. Go to IRS.gov and set up a payment plan online, or call the number on your IRS notice. Don’t put it off. Every day you wait, more interest piles up.
Step 6: Keep making payments. Once you set up an agreement, stick to it. Miss too many payments and the agreement gets canceled, putting you right back where you started.
The Bottom Line
Look, I get it. Owing money to the IRS is stressful. It keeps you up at night. You’re worried about losing your house, your car, your paycheck.
But here’s the truth: millions of Americans are in the exact same boat. And the IRS actually has systems in place to work with you. They’re not trying to destroy your life—they just want to get paid, even if it’s slowly, even if it’s less than the full amount.
The biggest mistake you can make is ignoring the problem. That’s when the IRS gets aggressive with garnishments, levies, and liens. But if you reach out—even if it’s just to set up a basic $50/month payment plan—you show good faith and buy yourself time and breathing room.
You’ve got this. Pick the option that fits your situation, take action today, and you’ll be on your way to getting this weight off your shoulders.
