Tax relief for back taxes: 5 options if you owe the IRS
By Joseph Lancaster, Settlement Officer since January 2013
Published · Updated
If you owe back taxes, the main ways to get relief are filing any missing returns, setting up a payment plan, requesting Currently Not Collectible status, applying for an Offer in Compromise, and asking for penalty relief. Which one fits depends on whether you can pay, how much you owe, and whether your returns are filed. None is automatic, and none removes the need to respond to IRS deadlines.
Back taxes are tax you owed in a past year and did not pay or file by the deadline. Interest and penalties are added until the balance is paid, so the amount usually grows over time. The sections below summarize what the IRS says about each option, with fees checked against IRS.gov on .
1. File any missing returns first
Filing compliance comes before almost everything else. To qualify for an installment agreement beyond the online limits or for an Offer in Compromise, the IRS requires that all required tax returns be filed. If you did not file, the IRS may file a substitute return for you using only the income it knows about, which can overstate what you owe.
Filing your own accurate return, even if you cannot pay, stops the failure-to-file penalty from growing. That penalty is much larger than the failure-to-pay penalty, so filing first is almost always worth doing.
IRS: Filing past due tax returns2. Set up a payment plan
If you can pay the balance over time, a payment plan is the most common route. A short-term plan covers balances you can pay in 180 days or less and has no setup fee. A long-term installment agreement lets you pay monthly, with setup fees of $29 to $178 depending on how you apply and whether you use Direct Debit. Low-income taxpayers may qualify for a reduced or waived fee.
You can apply online if you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns (short-term plans: less than $100,000). Penalties and interest keep accruing, though the failure-to-pay penalty drops to 0.25% a month during an approved plan if you filed your return on time.
Read our installment agreement guide3. Ask for Currently Not Collectible status
If paying would leave you unable to cover basic living expenses, the IRS may place your account in Currently Not Collectible (CNC) status and temporarily suspend most collection activity. You still owe the full amount, penalties and interest continue to accrue, the IRS may file a federal tax lien, and any refund you are due will be applied to the debt.
There is no fixed length. The IRS may review your finances later and resume collection if your ability to pay improves. You request it by calling 800-829-1040 or the number on your notice, and the IRS may ask for a Collection Information Statement.
Read our CNC guide4. Apply for an Offer in Compromise
An Offer in Compromise (OIC) may let you settle for less than the full amount if you cannot pay in full or paying would cause financial hardship. The IRS weighs your income, expenses, and asset equity, and generally will not accept an offer if you can pay in full through a payment plan or asset equity.
Every application requires a $205 fee and an initial payment unless you meet the low-income qualifications. With a lump-sum offer, you pay 20% of the offer when you apply. You must have filed all required returns, made required estimated payments, and not be in an open bankruptcy. If the offer is rejected, the application fee is not returned, but you can appeal.
Read our Offer in Compromise guide5. Request penalty relief
Penalties can add up to a large share of a back-tax bill. The failure-to-pay penalty is 0.5% of unpaid tax per month, capped at 25%, and the failure-to-file penalty accrues faster. If you have a clean compliance history, you may qualify for First Time Abate (FTA), which generally requires timely filing of the same return type for the prior three years and no penalties, or penalties that were abated, in that period.
The IRS is moving from FTA to Automatic Exemption from Penalty (AEP) starting summer 2026, covering 2025 tax year returns and later. Under AEP, eligible late filing or payment is not penalized and you do not have to ask. If you do not qualify, you may request relief based on reasonable cause. Removing a penalty also removes the interest charged on that penalty, but not interest on the tax itself.
IRS: Administrative penalty reliefAct on notices before deadlines
If you received a final notice of intent to levy or a lien notice, response deadlines and appeal rights may be short. Do not wait on a website for those. Call the number on the notice, or review our guide to stopping IRS levies and the checklist for choosing tax relief help before paying anyone.
Send a tax-help inquiryFrequently asked questions
What is the best tax relief option for back taxes?
There is no single best option. If you can afford to pay over time, an IRS payment plan is common. If paying would cause financial hardship, Currently Not Collectible status may apply. An Offer in Compromise is possible only when the IRS agrees you cannot pay the full amount. Whichever you pursue, you generally need to have filed all required returns first.
Can the IRS forgive back taxes?
Not automatically. An accepted Offer in Compromise settles a qualifying debt for less than the full amount, and eligible penalties may be removed through penalty relief. Currently Not Collectible status delays collection but does not cancel the debt, and the IRS also stops collecting once the collection statute expires, generally ten years after assessment.
What happens if I ignore back taxes?
Penalties and interest keep growing, the IRS may apply future refunds to the balance, and it may file a federal tax lien or levy wages and bank accounts after required notices. Responding early to a notice generally gives you more options.
Do I have to file missing returns before I get relief?
Generally yes. Installment agreements above the online limits and Offers in Compromise require all required returns to be filed. The IRS may also file a substitute return if you do not.
How much does it cost to set up an IRS payment plan?
A short-term plan of 180 days or less has no setup fee. Long-term plans cost $29 online with Direct Debit, $69 online without it, and $107 or $178 when applying by phone, mail, or in person. Low-income taxpayers may pay less or nothing.
Is ReliefGeek a government agency or tax relief company?
No. ReliefGeek is an independent educational website. We are not the IRS, and this page is not tax, legal, or accounting advice.
Sources
- IRS: Payment plans; installment agreements, accessed
- IRS: Offer in compromise, accessed
- IRS: Administrative penalty relief, accessed
- IRS: Temporarily delay the collection process, accessed
- IRS: Failure to pay penalty, accessed
- IRS: Filing past due tax returns, accessed
Written by Joseph Lancaster. This page is general education, not tax, legal, or accounting advice, and ReliefGeek is not the IRS. See our editorial standards and corrections policy. For a book-length walkthrough, see The Tax Relief Handbook.