Flexibility for Tax Debts


COVID-19 has hit many Americans hard in the pocketbook, so it’s no surprise that more than 20 million taxpayers now owe back taxes. 

The IRS has responded by helping people in various ways, starting with the People First Initiative (PFI) announced in March 2020. This program suspended certain tax debt collection efforts from April 1 to July 15 of 2020, assisting many taxpayers who had payments looming. 

In November, the IRS announced a follow-on to the PFI, the Taxpayer Relief Initiative, which expands and extends the PFI’s benefits. The initiative makes it easier for taxpayers to pay their debts over time and in ways that work best for them.   

Check out the latest assistance efforts from the IRS to see if they might help you clear your back taxes with more ease.

How does tax debt payment usually work?

Pandemic or no, the IRS offers both short and long-term payment plans for qualifying taxpayers who have tax debts. A short-term payment plan usually requires paying taxes in 120 days or less (though that has temporarily changed due to the pandemic, as we’ll discuss). A long-term payment plan, called an installment agreement, sets up a monthly payment amount aimed at clearing the tax bill in six years or fewer. 

Individuals may be qualified for a short-term payment plan if they owe less than $100,000 in combined tax, penalties, and interest. They may be qualified for an installment agreement if they owe $50,000 or less in combined tax, penalties, and interest and filed all required returns. Businesses may qualify for an installment agreement if they owe $25,000 or less in combined tax, penalties, and interest and filed all required returns. Sole proprietors and independent contractors should apply for a payment plan as an individual.

In most cases, taxpayers can apply for payment plans and installment agreements online through IRS.gov.

How does the Taxpayer Relief Initiative help? 

The Taxpayer Relief Initiative helps taxpayers with tax debt by extending the time they have to pay off their debt, providing flexibility in various circumstances, easing paperwork requirements, and providing more control over the amount and timing of payments. 

Here are key provisions of the Initiative: 

  • Short-term payment plans can now extend to 180 days instead of 120 days.
  • Those who temporarily can’t fulfill the terms of an accepted Offer in Compromise can get leniency from the IRS.
  • The IRS will automatically add to existing installment agreements certain new taxes owed by taxpayers who have gone out of business.
  • Some individual taxpayers with tax bills of less than $250,000 can set up installment agreements without providing financial justification. 
  • Some individual taxpayers with tax bills less than $250,000 for the 2019 tax year may qualify for an installment agreement without the IRS filing a notice of federal tax lien.
  • Certain taxpayers who pay installment agreements via direct debit may be able to change their payment amount and due date.

Other tools to help with tax debt payment

Taxpayers who owe back taxes can get other forms of relief by contacting the IRS by phone or in writing. These options include: 

  • Temporary delay of collection: If you notify the IRS that you are unable to pay your tax debt, the agency may delay collection until such time that you’re able to pay.  
  • Offer in Compromise: You may be able to settle your tax bill for less than the total amount if you qualify for an Offer in Compromise. Check your eligibility using the Offer in Compromise Pre-Qualifier tool. The Taxpayer Relief Initiative offers flexibility to those who are temporarily unable to meet their payment terms under their accepted offer.
  • Penalty relief: You may be able to get relief from penalties by asking for either reasonable cause assistance or penalty abatement relief. Reasonable cause assistance lets you argue that your failure to file a tax return or pay taxes when due was a result of a reasonable cause, such as a fire or other emergency. Penalty abatement relief may help you escape from paying penalties if it is your first time being required to pay them. 

“Don’t go silent” 

The most important thing to do in trying to get effective tax relief is to communicate with the IRS immediately about your situation. 

"If you're having a tax issue, don't go silent," writes Darren Guillot, IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support. "Please don't ignore the notice arriving in your mailbox. These problems don't get better with time." 

The IRS understands the challenging financial situation for many these days and is bringing flexibility to tax rules to ease the burden of those who owe back taxes. If you’re one of them, call the IRS right away, and then let Taxfyle help you get your taxes in order to ensure a future free of such stress.  

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