How to Find Tax Debt Relief: IRS Programs and Consolidation Options

No one looks forward to filing their taxes each year. Tax Day (usually April 15) goes a lot more smoothly when you're not dealing with debt from past-due taxes.

The best path to tax debt relief is direct contact with the IRS (Internal Revenue Service). The IRS offers a variety of repayment options, including installment and settlement programs.

If you work with the IRS, you may be able to consolidate multiple tax debts into one IRS installment agreement, which simplifies repayment and makes it easier to manage.

Private options are also available for tax debt, including a personal loan, a line of credit, or a professional tax relief company.

The best way to choose a tax debt relief strategy is to be well-informed about all of your options.

What Is Tax Debt Relief?

Tax debt is not a candidate for the same kind of debt relief that some people seek for unsecured debts like credit cards and personal loans.

Federal tax debt relief includes any program that helps you get caught up with the IRS. This could include getting more time to pay or a reduction in the amount you owe. The right tax debt relief option clears up your back tax problems and minimizes the negative impact on your finances.

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IRS Tax Debt Relief Programs

Believe it or not, the IRS understands that some taxpayers struggle to pay what they owe. The agency still expects payment and provides several ways to help you manage your tax problems.

Here are some examples.

Filing extension

If you aren't going to be able to get the information you need to file your taxes by the April 15 deadline, you may apply for an extension of time to file.

An extension gives you until October 15 to prepare your taxes without incurring penalties for late filing.

An extension doesn't exempt you from interest or penalties on unpaid taxes. You're expected to estimate what you owe and pay your taxes by the tax deadline.

The penalty for failing to file a return is far more severe than the penalty for not paying on time. So even if you're unable to pay your back taxes, an extension could help you minimize penalties and interest.

Pros:

• Avoid late filing penalties

• No fee to request extension

Cons:

• Only extends time to file, not time to pay

• Still owe taxes and could get a late payment penalty

Short-term payment plan

You may apply for a short-term payment plan if you don't have the money to pay your taxes. This gives you an additional 180 days to pay. There's no fee for this plan if you pay the amount you owe in full by the deadline.

Pros:

• Up to 180 days to repay

• No set-up fee

Cons:

• Must owe $100,000 or less

• Debit and credit card fees

Installment payment plans

If you don't expect to be able to pay your taxes in full within 180 days, you may apply for an installment payment plan.

An installment payment plan sets up a series of monthly payments over three to six years. There are costs, including a fee to set up the plan plus interest and penalties.

A payment plan stops the IRS from garnishing your bank account or your wages, or from seizing your assets. This also saves you from potentially steeper financial penalties and possible criminal prosecution.

You may apply for an IRS repayment plan online.

Pros:

• Repay tax debt in monthly payments

• Consolidate multiple tax debts

• Avoid garnishment or levies

• Flexible terms

Cons:

• Interest and penalties may apply

• Payoff may take up to 6 years

• Missed payments may end the agreement

• Does not reduce how much you owe

Offer in compromise (formerly IRS Fresh Start Program)

An offer in compromise (OIC) is an agreement to pay less than the full amount of tax debt that you owe. You have to file a request for an OIC, and the IRS has to approve your request for it to take effect. This option used to be known as the IRS Fresh Start Program.

With an offer in compromise, you file documents with the IRS comparing the amount you owe to the value of your assets. You also list your expected income over and above what you need for basic living expenses.

A formula based on that information determines how much of your debt you are reasonably expected to pay. You're given two years to pay that amount. If you meet that obligation on time and in full, the IRS forgives the remainder of your tax debt.

There's an application fee for an OIC. You may ask the IRS to waive the fee if you qualify as a low-income taxpayer.

You'll also need to submit an initial payment with your application. You may submit one of the following:

• One-time payment: You submit a payment of at least 20% with your application. If your offer is accepted, you must pay any remaining balance due on the offer in five or fewer installments.

• Periodic payment: With a periodic offer, you pay the amount you're offering over six to 24 installment payments. In this arrangement, you submit the first payment with your application and continue making payments while the IRS reviews your offer.

Both types of payments are nonrefundable. The upfront payment requirement may be waived if the IRS considers you a low-income taxpayer.

Watch out for OIC mills, as the IRS calls them. These companies use aggressive marketing to create panic by claiming you have a limited time to settle your tax debts. They often claim their services are necessary and charge steep fees without delivering results. Any claim of guaranteed results is a big red flag.

Your offer in compromise application should include:

• IRS Form 656 (Offer in Compromise)

• IRS Form 433-A (OIC)(Individuals) or 433-B (OIC)(Businesses) and supporting documents

• $205 application fee

• Initial offer payment

Make sure your forms are completed and signed. The fee and initial offer payment may be waived if you meet Low-Income Certification Guidelines.

You may use the IRS Offer In Compromise Pre-Qualifier tool online to check your eligibility.

Pros:

• Could reduce how much you owe

• Choose a one-time or periodic payment

• Remaining tax debt forgiven once you meet the agreement's terms

Cons:

• Strict requirements to qualify

• Process requires full financial disclosures

• $205 application fee

Partial Pay Installment Agreement

A Partial Pay Installment Agreement (PPIA) is another option if your tax debt is too large to repay in full before the Collection Statute Expiration Date (CSED), the date after which the IRS may no longer legally collect the debt. Unlike a standard installment agreement, a PPIA only requires partial repayment of what you owe. The IRS writes off the remaining balance once the CSED passes, provided you meet the terms of the agreement.

A PPIA may be a fit if you don't qualify for an offer in compromise but you're still unable to pay your full tax debt over time. The IRS periodically reviews your finances and could adjust or end the agreement if your situation improves.

Pros:

• Repay less than the full amount owed

• An option for taxpayers who don't qualify for an offer in compromise

Cons:

• The IRS reviews your finances periodically and may adjust payments

• Interest and penalties continue to accrue on the unpaid balance

Penalty and interest abatement

Penalty abatement reduces or removes specific penalties added to your tax bill, such as a late-filing or late-payment penalty. It does not reduce the tax you originally owed.

The IRS generally grants penalty abatement through one of two paths. Reasonable cause applies if a specific event, such as a natural disaster, serious illness, or death in the family, prevented you from filing or paying on time. Automatic exemption from penalty, or a previous program known as first-time abatement, applies if you have a clean compliance history for the prior three tax years and have filed, or arranged to file, all currently required returns.

Interest abatement is rarer and generally limited to cases where an IRS error or delay caused the extra interest. Interest continues to accrue on any unpaid balance until you pay it in full, so waiting could work against you.

Pros:

• Could reduce the total amount you owe

• No application fee for reasonable-cause or first-time requests

Cons:

• Only penalties, and rarely interest, are eligible; the original tax debt remains

• Requires documentation to support your request

Bankruptcy

Tax debt forgiveness through bankruptcy is possible in some cases. The IRS and courts do not guarantee this outcome for every filer.

You may be able to have tax debts discharged in Chapter 7 or Chapter 13 if they're more than three years old, as long as you filed your tax returns on time. In some cases, you may be able to get tax penalties waived through bankruptcy. Bankruptcy does not waive any tax lien you owed before declaring for bankruptcy.

Consult with an attorney to discuss whether bankruptcy could provide you with tax debt relief.

Pros:

• Could eliminate eligible tax debt

• Temporarily stops collection activity

Cons:

• Only certain tax debts are eligible

• Requires that you're current on your tax returns

Currently Not Collectible (CNC) status request

Financial hardship affects anyone, and the IRS understands that taxes sometimes get put on the back burner. Currently Not Collectible (CNC) is an IRS status that temporarily stops IRS tax debt collection activities.

You must be in severe financial hardship that prevents you from affording both your tax payments and basic necessities. You'll need to be able to provide documentation of your financial situation, including income, assets, expenses, and existing debts.

You may request CNC status by contacting the IRS. Contact the IRS by phone:

• Individual taxpayers: 800-829-1040 (or TTY/TDD 800-829-4059)

• Business taxpayers: 800-829-4933

The IRS may require you to fill out Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals), Form 433-F (Collection Information Statement), and/or Form 433-B (Collection Information Statement for Businesses). The IRS may also request additional documents to confirm information on your form.

Additionally, you need to file your prior year tax return even if you aren't able to pay all of your taxes right now. You may be eligible for a free return preparation through a Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) site.

Pros:

• No tax debt payments required while CNC status is active

• IRS tax debt collection activities stop temporarily

• Gives you extra time to become financially stable

Cons:

• Must prove financial hardship through documentation

• Interest and penalties may still accrue

• Annual review of income may end CNC status

Innocent spouse relief

Joint filing benefits both spouses when done correctly. Mistakes on a joint return may penalize both spouses. Innocent spouse relief may help you avoid tax debt your spouse incurred due to underreporting or other return issues, provided you did not know about the problem.

You may be eligible for innocent spouse relief if:

• You're married and filed a joint tax return.

• Your taxes were understated due to incorrectly reported income, deductions, credits, or asset valuations.

• You didn't know that your joint tax return contained errors. (You may still be eligible even with knowledge if you were a victim of domestic abuse.)

You may request innocent spouse relief within two years of being notified of taxes due and/or an audit. You'll need to file Form 8857 (Request for Innocent Spouse Relief).

Pros:

• May reduce or eliminate your liability for your spouse's debt

• May protect your assets from your spouse's tax debt

Cons:

• Application process may be complex and require detailed documentation

• May be denied if a court finds you had knowledge of the issue

How Does Tax Debt Relief Work?

Government debt relief programs, including those at the IRS, don't kick in automatically. You have to apply for them and be accepted.

If the IRS accepts your application for tax debt relief, it suspends other collection efforts as long as you continue to meet the terms of the program. If you satisfy those terms completely, no further consequences should follow.

That protection only applies to tax debts you acknowledged when you applied, not to all tax debt as a broad amnesty.

Who Needs IRS Tax Debt Relief?

If you need tax debt relief, you're far from alone. Millions of Americans are in the same boat.

IRS statistics show that in 2023, there were about 11.3 million delinquent tax accounts.

Millions of delinquent taxpayers have repayment plans. The system exists to help you pay your taxes if you're willing to try.

Your risk also grows the longer a balance goes unpaid. Once unpaid federal tax debt, including penalties and interest, exceeds $66,000 it is considered seriously delinquent. That threshold is as of 2026 and will be adjusted for inflation over time. Tax debt that exceeds the seriously delinquent threshold may be certified as such to the U.S. State Department. The State Department, which may then deny, revoke, or limit a passport.

How to Get Tax Debt Relief

You may apply for any of the IRS tax debt relief programs online at www.irs.gov.

To apply, submit your tax debt information and financial resources. Then (hopefully) the IRS approves a payment plan according to the terms of the program.

There's one other important requirement. You have to be up to date in your tax filings in order to qualify for one of these tax relief programs.

These programs aren't a substitute for filing your taxes. Only by keeping up to date with your tax filings does the IRS establish the full amount of your tax debt, and the payment plans are based on that amount.

Free Help From the IRS

The IRS and several nonprofit resources offer free help before you pay for a tax relief company.

Taxpayer Advocate Service (TAS). TAS is an independent organization within the IRS that helps taxpayers understand their rights and works through problems with the IRS on your behalf. Reach TAS at 877-777-4778 or through the Taxpayer Advocate Service website.

Low Income Taxpayer Clinics (LITC). LITCs help taxpayers of modest means work through a dispute with the IRS, often free or for a small fee. Search for a local LITC through the IRS website.

State and Local Tax Debt

State and local tax debt works differently than federal tax debt. Each state sets its own rules for penalties, interest, and settlement programs, and the process varies widely from state to state. Some states waive penalties but not interest, while others do the reverse. A few states offer little to no reduction on legitimate tax debt.

Contact your state comptroller's or state tax agency's office directly for state-specific payment plans or settlement programs. The National Association of State Auditors, Comptrollers and Treasurers (NASACT) maintains a state-by-state directory to help you find the right office.

Tax Debt Consolidation Alternatives to IRS Programs

If you don't want to work with the IRS directly, you may choose a private option. Here are some common strategies.

Professional tax relief companies

This may be an option if you're confused about your options and want a helping hand. A reputable tax relief company provides assistance in applying for IRS tax debt relief programs.

You may be able to do anything a tax debt relief company can do for you on your own. No tax debt relief company makes your tax debt disappear. Any company promising to reduce or eliminate your tax debt is likely a scam.

Pros:

• Provides guidance and advice

• May provide other services like tax prep

• May help you lower tax debt liability through IRS programs

Cons:

• Typically charge high fees for services

• No guarantee of success

• You may apply for the same IRS programs on your own

Tax debt consolidation with a personal loan

A personal loan is a way to consolidate many kinds of debt, including tax debt. Tax debt consolidation through a personal loan repays your back taxes in one transaction and ends collection efforts.

Personal loans usually require at least fair credit for approval. Good to excellent credit typically qualifies for the lowest interest rates. A reliable income is also required, and a larger loan generally needs higher income.

Consider a personal loan only if you're unable to get a more affordable offer from the IRS directly.

Pros:

• Consolidates multiple debts with one loan

• Ends collection activity once you repay the debt

• Interest fees may be lower than tax penalties

Cons:

• Fair to good credit typically required

• Origination or other fees may apply

• Monthly payments may be higher than IRS payment plan

Consolidation via home equity loans or line of credit (HELOC)

Another common option for consolidating debt is a home equity loan or home equity line of credit (HELOC).

If you own your home and have equity (that is, your home is worth more than you owe), you may use the equity you've built to apply for a loan or credit line. If approved, your home would serve as the collateral.

Home equity loans typically have lower interest rates than personal loans or credit cards, so they may be useful for larger debts you repay over time. The loan is secured by your home, so you could lose your home if you're unable to repay it.

Consider a home equity loan or HELOC for tax debt only if you're unable to get a better deal from the IRS directly.

Pros:

• HELOCs typically have low interest rates

• Loans may be large depending on home equity

• Could take up to 30 years to repay, which lowers the monthly payment compared to faster repayment options

Cons:

• Your home is used as collateral, which means your lender could foreclose if payments aren't made

• Closing costs and/or other fees typically apply

• Loan process may take several months

Intro 0% APR credit card

Credit card issuers may allow you to make tax payments with your credit card, and the IRS accepts credit card payments for a fee. Generally, the very high interest rates on credit cards make them a poor option for paying your taxes.

The exception is if you have good enough credit to get a credit card with a 0% APR offer on new purchases. These deals typically give you six to 18 months of 0% APR on purchases, which would include tax payments in most cases.

You'll need to make at least the minimum payment every month to maintain your account in good standing. Once the promotion expires, the standard APR will apply to any remaining balance, so pay in full before then to avoid costly fees.

Pros:

• Temporarily offers interest-free financing

• Low minimum monthly payments

• May earn rewards on tax payments

Cons:

• Requires good to excellent credit to qualify

• High interest when the promotional APR ends

• A high card balance may hurt your credit score

• Your tax burden may exceed your credit limit

• Processing fee for card payments

Warning Signs of Tax Relief Scams

Scammers commonly use debt to scare people into parting with their cash. They may impersonate the IRS or pretend to be a legitimate tax debt relief company.

Here are some warning signs you may be at risk of a tax relief scam:

• Calls or emails about your tax debt. The IRS doesn't usually make phone calls or send emails. The IRS typically sends initial contact about your tax debt through the mail. The IRS will only call if you contact them first. When the IRS calls, the agent should provide a name and badge number.

• Over-the-top promises or guarantees. No company is able to promise to eliminate your tax debt or guarantee a specific outcome with the IRS. These types of claims are a red flag.

• High upfront costs or fees. Use caution with companies that charge large upfront fees before they've even provided any services. Reputable companies will typically deliver results before charging fees.

• Pressure or fear tactics. Avoid any company that uses threats, intimidation, or other pressure tactics to get you to sign up for services you don't want.

• Lack of transparency. Be wary if representatives are unable to or won't answer key questions about fees, services, and qualifications.

Verify any tax preparer's credentials through the Directory of Federal Tax Return Preparers. Membership in a professional tax preparer organization is also a good sign.

Report suspected scams or fraud to the IRS online.

How to Choose Between Tax Debt Relief Options

Generally, the best options for dealing with tax debt will come from working directly with the IRS. This may not be the right move for everyone. Here's what to consider when comparing all of your options:

• Eligibility. Many tax debt relief programs have strict eligibility requirements.

• Cost. Consider all of the potential costs, including interest fees and penalties.

• Timeline. Some options may take much longer than others.

• Type of tax debt. You may need a different solution for personal vs. business debt.

• Credit impacts. Some tax relief options may have long-lasting impacts to your credit.

Tax debt relief options

What if You Don't Pay Your Taxes?

Tax debt relief applications require paperwork and follow-through. The consequences of doing nothing are worse: if you don't file your taxes and don't address your tax debt, your situation deteriorates further.

Here are some of those potential consequences.

Interest and penalties

If you're late paying your taxes, you're likely to face some extra costs in the form of interest and penalties even if you do establish a formal payment plan with the IRS.

The penalties are even stiffer if you don't file and don't establish a plan to pay your back taxes.

Also, the sooner you begin repaying your debt, the less interest you'll pay overall. Otherwise, your tax debt problem will just continue to grow at an increasingly fast pace.

Tax lien

A tax lien is a legal claim on your assets as security against payment of a debt. A tax lien may subject your property to forfeiture to the IRS. In the meantime, it may severely restrict your ability to get new credit or sell your property.

Wage garnishment

Wage garnishment is when the IRS legally requires your employer to send a portion of your wages toward your tax debt. Your employer takes the money out of your wages before you're paid, and it goes straight to the IRS.

The IRS will send you a notice of levy in the mail before garnishing your paycheck. If you don't respond, the IRS may garnish up to 25% of your disposable income. Wage garnishment may continue every paycheck until you've repaid all of your tax debt or made other arrangements with the IRS.

Bank levies

A bank levy is when the IRS takes money directly from your bank accounts to pay your back taxes. This is typically a last-ditch effort by the IRS to collect tax debt.

As with garnishment, the IRS sends a notice of intent before it executes the levy. If you don't respond, the IRS may require your bank to move money from your account toward your tax debt. The IRS may continue to levy your bank account until you fully pay the tax debt or work out another repayment plan.

Private collection activity

The IRS uses private collection agencies for some delinquent taxes. These agencies track down people who haven't contacted the IRS about their tax debt for at least a year.

While some private collection agencies legitimately work on behalf of the IRS, be wary of scams involving people posing as IRS tax collectors.

Here are three basic tips to help you guard against these scams:

• The IRS will notify you directly in writing before a private collection agency contacts you.

• A list of the private collection agencies contracted by the IRS is available on the IRS website. If someone contacts you, make sure their firm is on this list. Reach out to the collection agency at the phone number on the IRS site and verify that the person calling you is a legitimate representative.

• Always make any tax payments directly to the IRS and not to any third-party representative.

Possible criminal prosecution

Most penalties for non-payment of taxes are financial. You may face criminal prosecution if the IRS believes you deliberately tried to evade taxes. This usually only occurs if you've intentionally committed fraud by hiding income on your tax returns over several years, or if you provided false information during an audit. The IRS is highly unlikely to prosecute you simply because you owe money.

Don't Just Wait for Your Tax Debt Problem to Go Away

If you owe back taxes, the best course is to deal with the problem as quickly as possible.

If you don't, the interest and penalties on your back taxes continue to grow and increase your balance. Over time, you could also face collection activities or claims on your income and assets.

Also, don't assume that the problem will just go away in time. The statute of limitations for non-payment of taxes is as long as 10 years.

The statute of limitations period starts when you file your taxes, so if you're late filing, the clock doesn't start ticking until that point.

Also, the statute of limitations doesn't help if you have fraudulently tried to evade taxation.

A formal tax relief program from the IRS is the best course if you have tax debt. Take the first step by figuring out which tax debt relief program is best for you and file an application for that program with the IRS.

Dealing With Debt to Make Your Bills More Affordable

Debts that eat into your monthly cash can make it harder to cover must-pay bills like rent, utilities, and groceries. Debt settlement could free up money for those bills instead.

Debt settlement, a form of debt relief, means negotiating with your creditor to accept less than the full amount you owe and forgive the rest. Depending on what your creditor accepts, that could reduce what you owe by roughly 10% to 50%, helping you put those debts behind you faster than minimum payments would over many years.

Debt settlement is for unsecured debt like credit card debt, personal loans, medical debt, and payday loans.

Settlement frees up cash in your monthly budget that you may direct toward tax debts, housing, food, insurance, and other critical expenses.

You may negotiate your debts on your own or hire a professional debt settlement company to work on your behalf.

Debt settlement may negatively impact your credit.

Looking for debt relief in New Mexico or across the country? The first step is the most important one—learn more.