How to Settle Tax Debt With the IRS By Yourself: 2025 DIY Guide

Settling tax debt with the IRS is more achievable than you might think, thanks to several flexible options designed to fit a variety of financial situations.

In this guide, I’ll show you how to settle with the IRS using five key strategies: payment plans, Offers in Compromise, partial payment agreements, Currently Not Collectible status, and even bankruptcy as a last resort. With the right approach, you can resolve your tax debt by yourself and move forward with confidence.

If tackling this by yourself feels too intimidating, I’ve also shared some resources, like our highest-rated tax relief companies, to help you get the support you need.

Table of Contents

1. How much will the IRS settle for?
2. What if you don’t settle your tax debt?
3. DIY guide to settling with the IRS
   1. 1. Check your tax balance
   2. 2. Gather documents
   3. 3. Installment agreement
   4. 4. File unfiled taxes
   5. 5. Penalty relief
   6. 6. Innocent Spouse Relief, if applicable
   7. 7. Partial payment installment agreement
   8. 8. Offer in Compromise (OIC)
   9. 9. Currently Not Collectible status
   10. 10. Respond right away
   11. 11. Track progress
   12. 12. Record calls
   13. 13. File for bankruptcy (last resort)

How much will the IRS usually settle for?

The IRS will usually settle for what it deems you can feasibly pay. To determine this, the agency will take into account your assets (home, car, etc.), your income, your monthly expenses (rent, utilities, child care, etc.), your savings, and more.

The IRS does not publish statistics about how little the agency might settle for. For instance, when it comes to an OIC, the IRS simply states that it’s willing to settle a tax debt “for less than the full amount owed.”

Your best bet is to work with a tax accountant or tax resolution service to determine the most effective approach.

What happens if you don’t settle your IRS tax debt?

Failing to pay or settle your IRS tax debt can lead to increasingly serious consequences.

• Late payment penalties: If you miss Tax Day, the IRS will charge a failure-to-pay penalty that grows over time, eventually maxing out at 25% of the unpaid tax amount.
• Accruing interest: On top of penalties, your tax debt will also accrue interest, meaning the longer you wait, the more you’ll owe.

If the debt remains unpaid, the IRS can take aggressive action to collect, such as:

• Placing a tax lien on your property (including your car), which can hurt your credit and make it harder to borrow money.
• Issuing a tax levy to seize assets like your car, home, or wages to cover the debt.
• Passport restrictions: In some cases, the State Department may deny your passport renewal or even revoke your current passport.

The sooner you address your tax debt, the less severe these consequences will be.

It’s critical to pay your tax liabilities no matter your income level. Ignoring your tax payment obligations can lead to fairly drastic financial hardship due to wage garnishment, seized assets, and plunging credit scores. Ultimately, all of this can affect your employability.

What if you can’t settle with the IRS by yourself?

Tax accountants and tax settlement companies are expensive. You can settle tax debts with the IRS yourself, but it may be difficult.

If this seems too complex to handle solo, you can also call in a tax relief company or tax attorney.

Tax relief firms typically employ tax professionals and attorneys to help with your case. See our guide to the best tax relief companies if you’re considering this option. If you want to learn more about tax relief, check out our tax relief guide.

Whether you hire a professional to help with your tax debt depends on your level of competency in this area. If it’s not part of your acumen or you don’t have time to research in-depth to become competent, I recommend hiring a professional. Even if you are competent in this area, hiring a professional should help navigate some things you didn’t know that could benefit you through this process.

Erin Kinkade, CFP®

The DIY guide to settling with the IRS by yourself

If you know you have unpaid tax debt or receive a notice of deficiency, you have options to settle with the IRS.

If you can’t pay what you owe, it is critical to use one of these options and never to ignore the liability. It will not go away. The IRS does not have a statute of limitations to seize past-due taxes, so it can follow you throughout your life.

Erin Kinkade, CFP®

1. Check your tax balance and payment history

This is the easiest step, so get it done today! You can check your tax balance following our full guide here, so you know exactly what you’re dealing with.

If you choose to check online, which is the fastest and most convenient way to handle it, you’ll also be able to check your tax balance history and payment history to get a sense of what the IRS is currently looking at.

2. Gather your documents

Assemble every document related to your taxes to prepare for the next steps.

Put anything you’d normally share with the IRS during your routine tax filing in a dedicated folder in a separate drawer or filing cabinet section for easy reference next time you talk with the IRS or fill out paperwork.

Here’s some of the documentation you may want to gather now:

3. Set up an installment agreement

Now that you’ve confirmed that you owe back taxes and have a good handle on your situation, you can set up an installment agreement.

This is your first step to help you avoid accruing penalties and interest or having more scary letters arrive at your house.

Once you set up an installment agreement, you’ll start paying manageable amounts each month toward your debt and will be in good standing with the IRS. This takes off much of the pressure while you explore your other options.

Generally speaking, you can get short-term or long-term payment plans:

• Short-term installment agreement: 90 – 180 days
• Long-term installment agreement: More than 180 days

You can apply for either in one of three ways:

• Online: The easiest and fastest method is to apply for the payment plan online, using the IRS payment plan application.
• By mail: Though snail mail takes much longer—especially when it comes to the IRS—you can request an installment agreement via mail. Fill out Form 9465, following all IRS Form 9465 instructions to find the proper address (varies by state).
• Over the phone: If you feel speaking with an IRS agent about the process would be more helpful, you can call 800-829-1040 for individual tax debt assistance.

Who is eligible for an installment agreement?

You are eligible to apply online for an installment agreement online if:

• You owe less than $50,000 (for a long-term payment plan).
• You owe less than $100,000 (for a short-term payment plan).

You can still apply if you don’t meet these requirements by sending in Form 9465.

The IRS offers guaranteed approval for an installment agreement if you owe less than $10,000, have filed on time for the last five years, agree to repay your debt in three years, and can prove you can’t pay your full debt now.

Otherwise, approval is not guaranteed.

Pros and cons of installment agreements

4. File unfiled taxes

When you start having issues with the IRS, it’s common to want to bury your head in the sand and not file your current year’s taxes.

Or maybe there’s a year in the recent past that you didn’t file.

If you have unfiled taxes, it’s always better to have them filed than not, especially if you owe money for those years. Now that your installment agreement on known debt is in place and you have breathing room, take care of the unfiled taxes.

5. Request penalty relief

If you’ve been hit with IRS penalties while dealing with your tax debt, you might be able to get some of them removed.

The IRS offers what it calls “penalty relief” for people with a good reason for falling behind, like a medical emergency, a natural disaster, or other serious trouble.

If it’s your first time having a tax issue, you might qualify automatically. You’ll just need to explain what happened and possibly fill out a form. Getting penalties reduced can take a big chunk off what you owe, so it’s worth checking whether you’re eligible.

There are instances when you may not be able to manage your tax liability due to a medical condition that leads to incapacity or otherwise. In this case, consult an estate planning attorney or counselor who can help implement safeguards—for example, a durable or general power of attorney to handle financial affairs, specifically including tax liabilities.

Erin Kinkade, CFP®

6. Apply for Innocent Spouse Relief, if applicable

Sometimes, one spouse makes a mistake on a joint tax return—and the other person gets stuck with the bill.

If that’s happened to you, the IRS may let you off the hook. It’s called Innocent Spouse Relief, and it can protect you from taxes, penalties, or interest that weren’t really your fault.

You’ll need to show that you didn’t know (and had no reason to know) about the error when you signed the return. The process involves filling out a form and sharing your side of the story, but it could save you something.

7. For larger tax debts, seek a partial payment installment agreement

If you have tax debt that you know you can’t pay within the 10 years the IRS has to collect—called the Collection Statute Expiration Date (CSED)—an installment agreement isn’t necessarily out of the question.

Instead, you may be able to apply and qualify for a partial payment installment agreement (PPIA) with the IRS. With PPIAs, the IRS agrees to accept smaller payments spread out over an extended period.

The IRS reserves the right to review your finances during that repayment term. If the agency finds that your financial situation has improved, it can increase your payment or begin taking other measures to collect on the original debt.

How to settle with the IRS using a partial payment installment agreement

Unlike a traditional payment plan with the IRS, you can only apply for a PPIA over the phone or by mail.

The IRS will require a comprehensive financial statement (including Form 433-F) demonstrating your inability to pay the whole amount, even over an extended period.

Who is eligible for a PPIA?

Before you can be eligible for a PPIA, you’ll need to use all assets to try and repay your debt. The IRS can also ask that you use the equity in those assets (your home equity, for example) to pay off the balance.

It is much more challenging to be approved for a partial payment installment agreement than it is for a more traditional payment plan.

8. Try to apply for an Offer in Compromise (OIC)

An Offer in Compromise (OIC) is another way to settle your tax debts for less than you owe. This is what the IRS used to refer to as the IRS Fresh Start Program.

You’ll make a lump-sum payment upfront (at least 20% of what you’re offering to pay) and repay the rest of the agreed-upon balance in five or fewer payments or over 24 months.

How to settle with the IRS using an Offer in Compromise

When applying for an OIC, you’ll make an offer for what you can comfortably afford to pay (based on your assets, income, expenses, and other financial details), and the IRS will accept or reject it.

To apply, you’ll need to fill out IRS Form 656 and 433-A, pay a $205 application fee, and include an initial offer payment (at least 20% of your total offer).

If accepted, you’ll have two payment options to choose from for settling your agreed-upon debt:

• Repayment over 24 months
• Repayment in five or fewer installments (after the initial lump sum)

If your offer is rejected, you’ll have the option to appeal, though this doesn’t guarantee you’ll be successful.

Who is eligible for an OIC?

To qualify for an Offer in Compromise, you must be current on all tax return filings and able to demonstrate that you can’t repay your full tax liability, even in installments.

You can use this prequalifying tool to see whether you’re a good fit. Per 2024 tax year data from the IRS, only about 21% of applications are approved.

Pros and cons of an Offer in Compromise

Pros

• Ability to settle for less than what you owe

• Breaks up tax debt repayment into more manageable chunks

• Stops seizure of assets from unpaid tax debts

Cons

• Roughly a 21% success rate

• Must be able to make lump-sum payment

• Excessive paperwork to demonstrate financial hardship

• May require hiring a tax accountant to help with application

• $205 application fee

9. If you’re struggling financially, apply for Currently Not Collectible status

“Currently Not Collectible” (CNC) is an account status option with the IRS. It means you lack the financial capabilities to repay your tax debts and cover your basic living expenses simultaneously.

If you’re approved for CNC status (also called Uncollectible status), the IRS will stop all collection attempts, wage garnishments, and levies. Your account will still gain interest and be subject to late penalties.

How to settle with the IRS using CNC status

You don’t actually settle with the IRS when you get CNC status. You merely delay payment.

Like other settlement options, your tax returns must be filed to apply for CNC. You will then need to contact the IRS at 800-829-1040 to see whether you’re eligible.

While assessing your case, the agency may request documentation regarding your:

• Income
• Employment
• Debts
• Monthly expenses
• Other financial details

The IRS may also ask you to file a Form 433-A.

The agency will review your income annually to see if your financial situation has improved and you can resume repaying your debts. If not, your CNC status will remain, and all collections efforts will stay on hold.

The IRS has 10 years to collect your tax debt after assessment, but certain actions may pause or extend this timeline.

Who is eligible for CNC status?

The IRS will only approve you for CNC status in extreme scenarios where you can demonstrate an inability to pay what you owe for now. The IRS will conduct a thorough review, which means you’ll need a detailed paper trail to prove:

• You lack the assets or income to pay.
• You are unemployed—and all unemployment, Social Security, and welfare benefits only help keep you afloat.
• You make less than is required for basic living expenses.

Certain scenarios where you might consider applying for CNC status include when your finances are affected by:

• The death of a spouse
• Divorce
• Loss of a job
• Caring for a family member full-time
• A serious natural disaster

Pros and cons of currently not collectible status

Pros

• Delays payments entirely (but only temporarily)

• Avoids garnished wages and asset seizure

Cons

• Interest and fees still accrue

• Doesn’t eliminate tax debt

• Difficult to get approved

• Can affect credit score if IRS files Notice of Federal Tax Lien

10. Respond to calls and letters right away

Moving forward, any time the IRS communicates with you, respond as soon as you can. This helps you stay in good standing, builds goodwill, and avoids you getting in hotter water.

11. Keep track of progress on the IRS website

If you haven’t already set up your account on the IRS.gov website, do this now. You’ll be able to see the status of any applications you’ve started and receive digital communications regarding the review and approval process.

12. Record calls and save letters

All letters from the IRS should go directly in a dedicated folder of your filing cabinet. When you fill out a form, save a copy and add it to the folder too. Any relevant documents, you know where to put them now.

I’d even recommend taking screenshots of statuses and messages on the IRS site or printing the whole screen and adding this information to your folder.

When you’re on the phone with the IRS, record the call. You can do this with the basic voice recorder app that comes pre-installed on virtually every smartphone, or open a computer and record yourself on speakerphone with the agent.

13. File for bankruptcy as your last resort

You may need to file for Chapter 7 bankruptcy if you are drowning in debts, tax or otherwise. With this type of bankruptcy, you can discharge income tax debts that are at least three years old. You also need to be current on your tax return filings.

But be careful: Bankruptcy can’t wipe clean all debts—nor does it work with tax liens. If the IRS has already filed a lien against your house, car, or other assets, you’ll need to pay it off (or sell the assets) before it can be removed.

Bankruptcy comes with several costs. You’ll need to pay filing fees, hire a bankruptcy attorney, and potentially pay for bankruptcy counseling classes. On average, it costs between $500 and $3,000.

If you file for bankruptcy, your credit score can drop in a hurry. A person with a FICO score of 680 could lose 150 points in bankruptcy. Someone with a 780 score could lose 240 points.