6 Things You Shouldn’t Do If You Owe the IRS at Tax Time

While everyone hopes for money back at tax time, sometimes people do end up owing money. If you do end up owing the IRS after filing your taxes, there is a smart way to deal with that debt. Owing any amount of money to the IRS, no matter how large or small, is a scary prospect, but ignoring the debt won’t make it go away any faster. If you’ve completed your income tax return for the year and you’re facing a huge tax bill, it’s best to take care of it right away. These are some other things you shouldn’t do if you owe the IRS at tax time.

A financial advisor can help you determine the best way to minimize your tax liability while helping ensure you meet all IRS guidelines.

6 Common Mistakes When You Owe the IRS

Owing money to the IRS can be stressful, and many taxpayers make avoidable errors that can lead to added penalties or delays. These are six common mistakes to watch out for if you owe the IRS.

1. Not Filing a Return

If you owe back taxes and cannot afford to pay, you may avoid filing a return altogether, but that is not a good idea.

When you don’t file your return on time, the IRS automatically adds a 5% failure-to-file penalty for every month you owe taxes, up to a 25% maximum. Additionally, you will owe interest on the bill until it is paid in full.

2. Not Filing an Extension

Requesting a tax extension gives you until October 15 to file your annual return. If you file an extension request before the April 15th tax deadline, you will not have to worry about a failure-to-file penalty.

You will, however, still owe a failure-to-pay penalty on any outstanding taxes, which equals 5% of the balance, up to 25%.

3. Not Setting Up a Payment Plan

To make it easier for taxpayers to pay, Uncle Sam offers payment plans.

If you owe taxes and you cannot afford the bill, find out whether you qualify for an installment plan.

The IRS offers two types of plans, depending on how much you owe.

Long-term payment plan. You may be eligible for a long-term payment plan if you owe the IRS less than $50,000 in income taxes, penalties and interest. This will be repaid on a monthly basis.
Short-term payment plan. You may qualify for a short-term payment plan if your balance is under $100,000. You will have 180 days to pay your tax debt in full.

If you do not meet these thresholds, you must complete Form 9465 and mail it to your local IRS office to see what kind of plan you qualify for.

Keep in mind that interest and penalties will continue to accumulate until the balance is fully paid. If you are owed a refund in any subsequent tax years while you are on the plan, the IRS can subtract that from your total debt.

4. Ignoring the Consequences

Closeup of a pen and calculator resting on an agenda.

Aside from penalties and interest, there are other penalties for not paying your taxes. For example, your passport could be canceled, disrupting potential travel plans. However, the worst-case scenario is that the IRS places a lien against your property or garnishes your wages.

This is why it’s a good idea to resolve your IRS debt as soon as possible.

5. Choosing the Wrong Way to Pay

If you do not have enough cash to cover your tax bill, you may be considering taking on more debt to do it. Depending on your situation, that could mean borrowing against your home equity, taking out a personal loan or charging it all to a credit card. You may also want to consider a tax debt settlement.

The one thing you do not want to do is rush your decision. Take the time to compare interest rates, fees and repayment terms for each option so you know exactly what borrowing will cost you. When repaying debt, you do not want to risk an even worse situation, so it is important to find a solution that works.

6. Not Responding to IRS Notices Promptly

Many taxpayers make the mistake of ignoring the letters the IRS sends after a balance goes unpaid. Each notice includes important information about deadlines and penalties, as well as the IRS’s next steps.

Delaying your response can lead to more interest, automated penalties or escalation to enforced collection. Failure to reply may also mean you forfeit the opportunity to correct errors, set up a payment option or explain financial hardship.

Opening and addressing these notices immediately can help prevent the situation from becoming more difficult or expensive.

Payment Options for Those Who Owe the IRS

Fortunately, several repayment options are available to help you effectively manage your tax debt so you remain in good standing with the IRS.

Installment agreements. If you cannot pay your tax debt in full, an installment agreement allows you to make monthly payments over time to minimize financial strain. The IRS offers different types of installment plans, including short-term and long-term agreements, depending on the amount owed.
Offer in compromise. An offer in compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. This may apply if you can demonstrate that paying the full amount would cause financial hardship. The IRS considers your income, expenses and asset equity to determine eligibility for an OIC.
Currently not collectible status. If you are unable to pay your tax debt due to financial hardship, you may qualify for currently not collectible (CNC) status. This temporarily halts IRS collection activities, giving you time to improve your financial situation. However, interest and penalties will continue to accrue during this period.
Credit card payments. Paying your tax debt with a credit card is a convenient option if you prefer to manage payments through your credit provider. While this method can help you avoid immediate penalties, be cautious of potential interest charges from your credit card company that can quickly add to your debt.
Direct debit. Direct debit allows you to automate your tax payments directly from your bank account. This option ensures timely payments so you can avoid late fees. It is a reliable choice for those who prefer a hands-off approach to managing their tax obligations.

How to Avoid Owing the IRS Next Year

Avoiding future tax debt requires proactive planning and regular review of your tax situation throughout the year.

Many taxpayers fall short because of inaccurate withholding, unplanned income or failure to keep up with estimated tax obligations. These issues can often be corrected with timely adjustments and consistent monitoring. A review of current withholding levels helps determine whether enough funds are being taken out of each paycheck.

Form W-4 allows for adjustments to better align with expected tax liability. The IRS provides a Tax Withholding Estimator that can help identify whether your current settings are on track based on income, deductions, credits and filing status. Updating the W-4 is particularly important after major life events, such as marriage, divorce, a new job or changes in dependent status.

Self-employed individuals and those with side income must calculate and submit quarterly estimated payments to the IRS. These estimated tax payments should reflect both federal income tax and self-employment tax obligations, including Social Security and Medicare contributions.

Underpayment across quarters can result in penalties, even if the balance is paid by the tax deadline. Reviewing prior year earnings and projecting income accurately can help maintain compliance and avoid surprise balances.

Certain types of income often lack automatic withholding.

Setting aside a percentage of this income in a separate account designated for tax payments helps avoid shortfalls and provides liquidity when quarterly deadlines approach. They also allow for easier tracking.

Any tax-advantaged account contributions, like IRAs or HSAs, should be factored in, as they may lower taxable income, thereby reducing your required payments.

Working with a tax preparer or CPA during the year – and not just at filing time – can provide clarity on tax exposures. Together, you can identify steps to reduce or spread out your liability. Ongoing tax planning may include adjusting investment strategies, timing income and deductions and reevaluating eligibility for tax credits.

By treating tax obligations as a year-round process rather than a once-a-year event, taxpayers can better manage their cash flow and reduce the risk of falling into debt with the IRS again.

What Happens If You Ignore an IRS Balance?

An unpaid tax bill begins with a formal notice from the IRS showing the balance due, along with interest and penalties. If the balance remains unpaid after the first notice, additional letters follow, each becoming more urgent.

These notices outline the amount owed and applicable deadlines while reiterating the IRS’s authority to collect the debt. Interest compounds daily, and penalties accumulate monthly until the balance is resolved or placed into an approved arrangement.

If several notices go unanswered, the IRS may move the account into the collection process. At this stage, the IRS can file a federal tax lien that then becomes a public record. A lien attaches to all property you own, including real estate and financial assets. It can also negatively affect your credit, impacting your ability to refinance or sell your property. While a lien does not involve the seizure of assets, it signals that the IRS has a legal claim on them until the balance is paid.

Continued nonpayment can escalate to enforced collection. The IRS may issue a levy, allowing it to seize funds directly from wages, bank accounts or certain federal payments. Wage garnishment typically reduces each paycheck until the balance is satisfied or a payment plan is approved. Bank account levies can remove funds already on deposit, subject to legal limits. The IRS can also seize certain physical assets in rare cases, though this is typically a last resort.

If the IRS determines that you are temporarily unable to pay, the account may be placed in a status that pauses collection. However, interest and penalties continue to accrue, and the IRS can revisit the account once your financial situation changes.

Because collection actions follow a structured timeline, addressing an unpaid balance early helps prevent these consequences from progressing.

Bottom Line

Paying taxes is never pleasant, especially when you receive an unexpected bill you cannot afford. Facing it head-on is the best approach if you do not want to risk deeper trouble with the IRS. Just ensure you address the problem right away and figure out a way to resolve it quickly so you do not risk worse penalties.

Tax Planning Tips

A financial advisor can help you optimize your financial plan to mitigate your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Check what your income tax bill could be using SmartAsset’s free online calculator.