Can't pay your taxes: what to do first, in dollars

Two failures, priced very differently

Section 6651 punishes not filing and not paying separately, and the two penalties are not the same size. The failure to file penalty is 5 % a month for five months. The failure to pay penalty is 0.5 % a month for up to 50 months. In the months both apply, the filing penalty is cut by the payment penalty, so the pair costs 5 % a month at first; after the fifth month only the slower one continues. A person who cannot pay but files on time keeps the filing penalty at zero for good.

The table follows $13,800 of 2025 tax, due April 15, 2026, to October 20, 2027, twelve months from now, under four ways of handling it.

Paying part of it still pays off

A partial payment lowers both the penalty base and the interest base from the day it is made. In the example, $5,000 paid in April saves $1,049 of penalty and interest by October 20, 2027, on top of the $5,000 itself. The IRS points the same way on its payment plan page: if you cannot pay the full amount, pay as much as you can, then look at the payment options. A payment made with an extension request also counts as the extension, as the extension page explains.

Borrowing to pay, measured against a plan

The Form 9465 instructions suggest looking at a bank loan or available credit before a payment plan, since they may cost less. The comparison is simple to set up. A plan costs the IRS interest rate, 7 % a year in the fourth quarter of 2026, plus the late payment penalty, which in an approved plan with a return filed on time is 0.25 % a month, about 3 % a year on the tax still unpaid. Together that is roughly 10 % a year, plus the set-up fee. A loan with a lower annual rate and no fees costs less; a credit card at a higher rate costs more, and card payments to the IRS carry a processor fee as well. Whatever the source of the money, the 5 % monthly cost of a missing return outweighs both.

When the balance arrives later, on a notice

Not every unpaid tax starts in April. Tax the IRS adds after the return, for instance through a CP2000 matching notice that you agree with, comes with a date to pay, generally 21 days after the notice. Paid by then, it carries interest from the original due date but no late payment penalty. Past that date, the same 0.5 % monthly penalty starts, and the same routes apply: a short-term plan, an installment agreement or the others below.

The routes, from quickest to slowest

Each route costs less than the one after it, and each asks for more proof of what you can afford. The amounts below use the same $13,800 counted from today.

The short-term plan and the monthly payment plan cover most cases. Currently not collectible status is for people whose income does not cover basic living expenses: the IRS stops most collection, but the IRS page on it is clear that the debt is not forgiven, penalties and interest keep running, a lien may be filed and refunds are applied to the balance. An offer in compromise settles for less when the IRS agrees that the full amount cannot be collected.

What happens when nothing is done

Ignoring the balance does not freeze it. The first bill, a CP14, is followed by reminders, then a CP504 notice of intent to levy, after which the late payment penalty doubles to 1 % a month. Refunds for later years are kept and applied. A lien can be filed against property, and wages or bank accounts can be levied. Every one of those steps can be stopped or avoided by one of the routes above, and none of them needs a paid firm: the IRS sets up plans online, by phone and in person, and the Taxpayer Advocate Service and Low Income Taxpayer Clinics help for free or a small fee. These figures are estimates for planning; the IRS decides what it accepts.