The number on the IRS notice is bigger than anything in your bank account, and you have not opened the next letter.
Short answer: File your return on time even if you cannot pay. Then tell the IRS what you can afford: a payment plan is the usual route, and the IRS says penalties and interest keep growing until the balance is paid. Ignoring the notices is what leads to a levy, which can take money from a bank account or wages.
Based on IRS pages on the failure-to-file and failure-to-pay penalties, the IRS payment plan release and the Taxpayer Advocate Service. Fees and rates change, so check IRS.gov before you act.
File first, even with nothing to send
The failure-to-file penalty is 5% of the tax due for each month or part of a month the return is late, capped at 25% (IRS). The failure-to-pay penalty is 0.5% a month, up to 25% (IRS). When both apply in the same month, the filing penalty is reduced by the payment penalty, so the IRS example works out as 4.5% plus 0.5%.
Our own arithmetic, ignoring interest: on a $5,000 bill, a return filed five months late costs about $1,250 in penalties (4.5% + 0.5% a month for five months). Filed on time with nothing paid, the same five months cost about $125 (0.5% a month). That is a $1,125 difference for sending a form.
Your options, cheapest first
- Short-term plan: if you owe under $100,000 including penalties and interest, you can get an extra 180 days to pay in full (IRS).
- Long-term plan: under $50,000, monthly payments for up to 72 months, applied for online. Direct debit is required for balances between $25,000 and $50,000 (IRS). Setup fees may apply.
- On a plan, the failure-to-pay penalty drops to 0.25% a month, but only if you filed on time (IRS).
- Currently not collectible: the IRS can pause collection if you cannot pay your tax and reasonable living costs. The debt stays (TAS).
- Offer in compromise: a settlement for less, only if you qualify. Read the conditions first (TAS).
- Penalty relief: penalties may be removed or reduced for reasonable cause and good-faith efforts (IRS).
What happens if you do nothing
Interest is charged daily on unpaid tax (TAS), and the penalty rate can rise to 1% a month if you do not pay within 10 days of a notice of intent to levy (IRS). The IRS can file a Notice of Federal Tax Lien, which can affect your credit and your ability to sell property, and it can levy a bank account or wages (TAS). Seriously delinquent debts can also be certified to the State Department for passport action (TAS).
Tax debt is rarely the only bill. To see how interest eats a balance at different payments, try the minimum payment trap calculator, and read wage garnishment limits. If part of what you owe is cancelled debt, see 1099-C and tax.
Questions people ask at 2am
Should I file if I cannot pay anything?
Yes. The IRS says filing by the due date avoids late filing penalties, and an extension to file does not extend the time to pay (IRS). Filing and paying later costs less than not filing.
Will the IRS take my bank account straight away?
It can happen if you ignore the notices. The Taxpayer Advocate Service says the IRS can levy, for example a bank account or wages, if you do not respond to notices about the debt (TAS). Answer every notice. See how a bank levy works.
What does currently not collectible mean?
If the IRS agrees you cannot pay the tax and your reasonable living expenses, collection pauses. The debt remains, and penalties and interest keep adding up (TAS).
Is an offer in compromise a good way out?
It can settle the debt for less, but not everyone qualifies. You must have filed all returns, stay current on payments, pay a $205 application fee unless low-income rules apply, and the offer may be rejected without a refund (TAS). The same page says payment plans are often easier to get.
Can the IRS take my tax refund?
Yes. The IRS may apply your refunds to the debt (TAS).
Where can I get free help?
The Taxpayer Advocate Service helps taxpayers with hardship at 1-877-777-4778, and Low Income Taxpayer Clinics can represent you in collection disputes for free or a small fee (TAS). Nonprofit credit counseling is available through the NFCC at 877-360-6322.
Disclaimer: DebtShift is an educational platform operated by H Ali Logistics Ltd. This article is general education, not legal or financial advice. For free, nonprofit credit counseling, contact the National Foundation for Credit Counseling (NFCC) at nfcc.org or 877-360-6322.
Sources
- IRS, Failure to file penalty
- IRS, Failure to pay penalty
- IRS, Payment plan options (FS-2023-15)
- Taxpayer Advocate Service, Can’t pay my taxes
- Taxpayer Advocate Service, Offer in compromise
Last reviewed October 2026
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