The IRS is currently dealing with a backlog of millions of tax returns. So it has temporarily stopped sending out collection notices. But that doesn’t mean that people with unpaid bills should wait to pay their dues.
Because according to National Taxpayer Advocate Erin Collins, a suspended notice doesn’t mean that interest stops accruing on outstanding balances.
“I was a big proponent of shutting down the notices and suspending them,” she told a Senate Finance Committee hearing on Thursday. “But I want to make sure those folks understand the interest continues to accrue.”
So she’s urging people to continue to work towards paying off their debts, even though their bills are easier to avoid right now. Admittedly, IRS agents are difficult to reach at the moment. But as Collins shared, they’re “still willing to work with you.” So if you’re one of the millions of people who owe back taxes, keep reading to learn about your options.
Pay Your Taxes with an Installment agreement
If you don’t have the funds to pay your balance in full, you can apply for an installment agreement, which means you’ll pay them off in an agreed-upon about of time. To qualify, you can not have any unfiled returns. And you also must only owe $50,000 or less, including tax, penalties, and interest.
Erin Collins warned that you need to consider your financial future before taking this route, though. For example, if you can’t pay future tax bills, you’ll break the terms of your agreement. And doing that can create a whole new set of problems.
However, if you’re confident that you won’t have issues in upcoming years, making an installment agreement is “a very quick process” that can be done online, over the phone, or through a bot.
Settle Your Debt by Making an Offer in Compromise
If you cannot foresee paying off your entire debt, you may be able to make an offer in comprise. By doing that, the IRS may settle for less than you owe. However, the agency will want you to exhaust “all other payment options” first.
“If you can show that you have financial challenges, you may be able to reduce the liability and settle it with finality to put the tax behind you so you can move forward,” Collins said.
You must be current on all your returns to qualify—unless you have a valid extension on file. You also have to be up to date with all of your current tax payments. To pre-qualify for an offer in compromise, click here.
Claim a ‘Currently Not Collectible’ Status
Your taxes can also go into a “currently not collectible” status, which would mean the IRS would not try to collect your dues for a period of time.
However, your debts will continue to accrue penalties and interest while in that status. And if you qualify for returns in the future, the IRS will likely use that money to cover your past dues.
To qualify, you’ll need to file all of your past-due returns. Then you will need to fill out Form 433-A, Form 433-F, or Form 433-B. The IRS will also ask for various documents that prove financial hardship.