Ask Izzy - I Owe Money To The IRS and I Can't Pay Right Now, What Do I Do?

Hi Izzy,

So, I owe $30,000 to the IRS, what do I do? Should I take out a loan? Use my personal 401k? Maybe take out a home equity loan, etc.? Or use the IRS payment plan?

Thank you for any help and guidance.

Max R., New York, New York

Hi Max,

Thank you for the question. First off, I know this must be a really stressful time for you, so I'm glad you asked this question. You aren't alone and you do have some options for paying back your taxes.

First, always make sure you still file your taxes, even if you can't afford to pay them right now. If you can’t afford to pay your taxes, you may be able to qualify for an installment plan with the IRS (Internal Revenue Service).

An installment plan allows you to pay your taxes over time while avoiding garnishments, levies or other collection actions. You'll still owe penalties and interest for paying your taxes late, but it can help make the payments more affordable. The interest rate is federal short-term rate plus 3 percentage points – currently 6%. At the current interest rate and the 72 month window as well as the IRS typically approves the Streamlined Installment Plan, it would make the most sense to use that option.

On a home equity loan, you are only paying interest and you will have the loan due usually in 10 years’ time.

A401k might offer a low interest rate but you would be missing out on market appreciation in the 401k for the outstanding portion of the loan.

Minimum monthly payment

You can apply for an installment agreement online, over the phone, or via various IRS forms. To some degree, you get to choose how much you want to pay every month. The IRS will ask you what you can afford to pay per month, encouraging you to pay as much as possible to reduce your interest and penalties.

If you choose not to answer, select too low of an amount, or let the IRS pick a payment amount for you, your minimum payment will be the amount that you owe divided by 72.

Balance of $10,000 or below

If you owe less than $10,000 to the IRS, your installment plan will generally be automatically approved as a "guaranteed" installment agreement. Under this type of plan, as long as you pledge to pay off your balance within three years, there is no specific minimum payment required. For balances above $10,000, you may have to provide additional information in order to qualify.

Balance between $10,000 and $25,000

With a balance due above $10,000, you can qualify for a streamlined installment plan. While acceptance isn't guaranteed, the IRS doesn't usually require additional financial information to approve these plans. With a streamlined plan, you have 72 months to pay. A minimum payment does kick in, equal to your balance due divided by the 72-month maximum period.

Balance between $25,000 and $50,000

Qualifying for a plan with a higher balance due requires additional information. The IRS will want to know about your income and expenses on Form 9465-FS. Your minimum payment will be your balance due divided by 72, as with balances between $10,000 and $25,000.

I hope this helps you.

Thank you,

Izzy H.