Step 1: file on time, even if you cannot pay
The IRS charges two different penalties. Filing late costs much more than paying late.
- Late filing penalty: 5% of the unpaid tax for each month or part of a month the return is late, up to 25%.
- Late payment penalty: 0.5% of the unpaid tax for each month or part of a month, up to 25%.
- If both apply in the same month, the total is 5% for that month, not 5.5%.
- If your return is more than 60 days late, there is a minimum penalty. For returns due after December 31, 2025, it is $525 or 100% of the unpaid tax, whichever is less. The IRS updates this amount each year.
- Interest is added to unpaid tax and penalties until you pay in full. The IRS can change the rate every 3 months.
So the first move is simple. File by the deadline, pay what you can, and then set up a plan for the rest.
IRS payment plan options for individuals
- Pay in full now: no setup fee, and no more penalties or interest after you pay.
- Short-term plan (180 days or less): for people who owe less than $100,000 in tax, penalties and interest. No setup fee. Penalties and interest keep adding up until you pay it all.
- Long-term plan (installment agreement): you pay every month. You can apply online if you owe $50,000 or less in tax, penalties and interest and you have filed all required returns.
If you are self-employed or a sole proprietor, you apply as an individual. Business accounts cannot apply online. They call the number on their notice.
What an IRS payment plan costs
These are the IRS setup fees for a long-term plan. The IRS adds the fee to your balance.
- Automatic monthly payments from your bank (direct debit): $29 if you apply online. $107 by phone, mail or in person.
- Other monthly payments: $69 if you apply online. $178 by phone, mail or in person.
- Low income: the direct debit fee is waived. For other payment types the fee is $43, and it may be paid back to you if certain conditions are met.
- Changing an existing plan online: $6.
Good to know: if you filed on time and have an approved plan, the late payment penalty drops to 0.25% a month while the plan is active.
To apply online you need an IRS Online Account. You need a photo ID to create one. For direct debit, have your bank routing and account numbers ready.
If you truly cannot pay right now
- Currently Not Collectible: if paying would leave you unable to cover basic living costs, the IRS may pause most collection for a while. You still owe the full amount, and penalties and interest keep adding up. The IRS may ask for a form about your income and expenses, like Form 433-F.
- Offer in Compromise: this can settle a tax debt for less than you owe, but only if you cannot pay it in full. The IRS generally says no if you could pay through a payment plan. You must have filed all required returns. The application fee is $205 plus a first payment, unless you meet the low income rules. Check first with the free IRS Pre-Qualifier tool.
Can the IRS remove my penalties?
Sometimes, yes.
- First Time Abate: if you filed and paid on time for the 3 years before, you can ask the IRS to remove late filing or late payment penalties. Call the number on your notice or send Form 843.
- Automatic Exemption from Penalty: new in summer 2026. Starting with 2025 tax year returns, if you file or pay late but the 3 prior years were clean, the IRS will not charge those penalties at all. You get a letter saying so. You still owe the tax and the interest.
- Reasonable cause: if you do not qualify, you can still ask the IRS to remove a penalty for a good reason, like a serious illness or a disaster.
The IRS notices you may get, in order
- CP14: the first bill. It says how much you owe and when to pay.
- CP501: a reminder that you still have a balance.
- CP503: a second reminder. The IRS may file a tax lien if you do not respond.
- CP504: a Notice of Intent to Levy. The IRS can take your state tax refund and later go after wages or bank accounts.
Each notice gives you a chance to pay or set up a plan. The earlier you act, the more choices you have. If you are not sure which letter you have, try our free IRS Letter Decoder.
How to avoid tax relief scams
In its 2026 Dirty Dozen list, the IRS warns about "OIC mills". These companies make big promises and charge high fees to people who do not qualify for an Offer in Compromise.
- Be careful with anyone who promises to settle your debt for "pennies on the dollar" before they look at your file.
- The IRS usually contacts you by mail first.
- The IRS does not call to demand payment by gift card, prepaid debit card or wire transfer.
- The IRS does not threaten to have you arrested by police or immigration officers.
- Pay the IRS only through IRS.gov/payments or to the "United States Treasury".
How we can help
We are a tax preparation office. We file any missing returns, show you what you owe, and walk you through the IRS payment plan options so you can pick one you can keep up with. We do not represent clients before IRS Collection. If you need that, we tell you plainly.
Sources: irs.gov/payments/online-payment-agreement-application, irs.gov/payments/payment-plans-installment-agreements, irs.gov/payments/failure-to-file-penalty, irs.gov/payments/failure-to-pay-penalty, irs.gov penalty relief (First Time Abate), irs.gov/payments/offer-in-compromise, irs.gov temporarily delay collection, irs.gov CP504 notice, irs.gov Dirty Dozen 2026, irs.gov how to know it is really the IRS.
General information, not tax advice for your situation. Last reviewed: October 2026.