How to Know If You Owe the IRS Money

Each April, we file and pay our taxes (or, if we’re lucky, get a refund). But sometimes, the tax bill is too high, and we can’t afford to pay. Other times, life gets in the way, and we forget to file at all (or file too late), or we make mistakes when filing taxes and wind up underpaying the Internal Revenue Service (IRS). These circumstances can lead to heavy back taxes, including penalties and interest. 

But how do you know if you’re in debt to the IRS, and how can you calculate how much you must pay? Below, we’ll show you how to know if you owe the IRS money—and what to do about it.

How to know if you owe the IRS money

The two main ways to determine if you owe money to the IRS are:

1. The IRS will notify you by mail.
2. Check with the IRS.

The IRS notifies you

The IRS will notify you by mail if you owe money, including penalties and interest from previous tax years. The initial letter will detail how much you owe and demand prompt payment. Ignoring this notice can lead to more interest and late fees, and the IRS may garnish your wages or place a tax lien on your assets.

Always update your address with the IRS to ensure you get these important notices. You can update your address when you file taxes, set up mail forwarding, or submit Form 8822 or 8822-B.

If you don’t respond to the IRS’s letters, it may contact you by phone or in person. If you’re uncertain about the legitimacy of a call, hang up and contact the IRS. Remember, the IRS will never contact you by text or social media—any such messages are likely scams.

You check your tax balance

You don’t need to wait for the IRS to contact you to determine whether you owe it money. It’s better to be proactive—the sooner you find out you owe the IRS money, the sooner you can make a plan to pay down the debt, and the less you’ll incur in interest and late fees.

So how do you check your tax balance with the IRS? An online account is easiest, but you have a few options.

Method	How to do it	Best for
Online	Log in to your online tax account	Everyone—this is the IRS’s recommended action
Over the phone	Call the number on your bill (or call 800-829-1040)	Those who aren’t internet-savvy
Hire a professional	Find a tax professional you trust	Those overwhelmed by their tax situation

Online

The IRS recommends logging in to your online IRS account to check your tax balance, payments, tax records, and any other important document, notice, or piece of information regarding your tax history.

You can sign in to your account here. You’ll need photo identification to sign up if you haven’t yet created an IRS online account.

Over the phone

If you get a notice from the IRS, it should include a direct number to call to discuss options. But if you’re trying to be proactive, you can call the IRS to discuss your debt at 800-829-1040.

Hire a professional

Sometimes, determining and settling IRS debt can be overwhelming, and the process feels like a neverending mountain of paperwork and phone calls. In those scenarios, hiring a tax accountant to help make sense of your situation can be helpful.

Hiring one of our best tax relief companies may make sense if you owe a significant amount and need to devise a payment plan or consider alternative options (discussed below).

Remember: Tax relief services can cost a significant amount, and they can never guarantee success in negotiating a payment plan or lowering your overall debt.

What to do if you owe the IRS money

We’ve reviewed how to know if you owe the IRS money, but where do you go from there? You have several options to settle your tax debt, but not all the paths forward are available to everyone—and most come at an additional cost.

Plan	Best for
Pay in full	Everyone—this option gets you out of debt immediately and at the lowest cost
Installment agreement	Those who can pay but need to spread out payments
Offer in compromise	Those who can’t afford the full tax bill
Currently not collectible status	Those in true financial hardship

Pay in full

The best way to get out of tax debt is to pay what you owe in full. You can pay online through your IRS account or credit or debit card.

Be careful with credit card payments: Credit card interest rates can be much higher than the IRS’s charges. Only use a credit card if you can repay the debt on your card right away.

Installment agreement

If you owe back taxes, chances are good it’s because you can’t pay in full. The IRS offers short- and long-term installment agreements that let you spread out your payments over a set period. In that way, an installment agreement with the IRS works like a personal loan.

• Short-term installment plans: You’ll have 80 to 180 days to pay what you owe.
• Long-term installment plans: You’ll have more than 180 days to pay what you owe.

You can apply for an installment agreement with the IRS online, by mail, or over the phone. Approval is guaranteed if you meet certain conditions:

• Owe less than $10,000
• Have filed on time for the last five years
• Agree to repay your debt in three years
• Prove you can’t pay in full

You must meet all four conditions for guaranteed approval. You might get approved if your situation doesn’t match these conditions, but it’s not promised.

With an installment plan, you’ll still owe late fees and interest and may also owe a fee for setting up the installment agreement.

Offer in compromise

An offer in compromise (OIC) is a way to negotiate with the IRS. You’ll fill out a form, pay an application fee, and indicate how much you can pay toward your debt. With that application, you’ll pay a lump sum upfront (at least 20% of what you’re offering to pay), and then, if approved, you’ll pay the rest in five or fewer payments or over the next two years.

The catch? IRS approval for OICs is uncommon. According to the IRS, it only accepts about 33% of applications each year. The better you argue your inability to pay—and the more you commit to paying—the more likely you will be approved.

Currently not collectible status

If you’re facing true financial hardship, you can apply for currently not collectible (CNC) status. To earn this status, which stops all collection attempts for a period, you must prove to the IRS that you can’t afford to pay anything toward your tax debt. (You’ll still accrue interest and late fees with this status, by the way.)

Earning CNC status is hard work. The IRS requires comprehensive documentation of your income, assets, employment, debts, expenses, and all other components of your financial situation. The process can take several months, and earning the status isn’t guaranteed.

How much will it cost to repay the IRS?

How much it costs to repay the IRS depends on the route you take. At a minimum, you’ll owe late penalties and interest charges:

• Late penalties: You may owe a failure-to-pay penalty of one-half of 1% of each month (or part of a month) you don’t pay, up to 25% of your total tax debt. If you also didn’t file, you’ll also owe a failure-to-file penalty equal to 5% of the tax owed for each month (or part of a month) you don’t file your return, up to 25% of your total tax debt.
• Interest: Late payments accrue interest equal to the federal short-term rate plus 3%.

However, you may also pay fees for the alternative repayment methods discussed above:

• Installment plans: Setting up a short-term payment plan is free, but setting up a long-term payment plan costs between $22 and $178.
• Offer in compromise: Applying for an OIC costs $205.
• Currently not collectible: Because applying for this status is challenging, you may need to hire a professional tax relief service, which costs between $1,500 and $4,000 for CNC applications.

How long do I have to pay off my tax balance?

The IRS has 10 years to collect taxes owed, including penalties and interest, but several scenarios can extend this period, such as an OIC or CNC status. Avoid taking 10 years to repay your taxes because you’ll accrue interest and late charges during this time, and the IRS can garnish your wages and seize your assets to settle your debt.

To that end, you always have until Tax Day—typically April 15—to pay taxes due from the previous year. If you can’t pay by then, work with the IRS to set up a payment plan.

Our expert’s advice

Erin Kinkade

CFP®

I recommend reviewing and updating your W-4 every year for federal taxes, and if you live in a state that imposes state income tax, I also recommend updating that form each year. Don’t assume your W-4 elections will carry over to your new job if somebody changes jobs. (Your employer should require you to complete a new W-4 and state withholding form, if applicable). You can use the Tax Withholding Estimator tool for federal taxes to understand how much you should withhold. You should be able to find something similar for the state you live in if it collects state income tax. Another helpful strategy, which is required if you are a 1099 employee, is to pay as you go and pay taxes quarterly throughout the year.

FAQ

Will the IRS always notify me if I owe money?

Yes, the IRS notifies taxpayers if they owe money. This notification will come in the form of a letter or notice explaining the amount owed, the reason for the balance, and instructions on how to pay. Keeping your contact information updated with the IRS is essential to ensure you receive these communications. You can contact the IRS or check your account online if you suspect you owe money but haven’t gotten a notice.

What makes you owe the IRS money?

You may owe the IRS money for various reasons, such as underpaying taxes, underreporting income, or errors on your tax return. Additional reasons can include penalties for late filing or late payment, interest on unpaid balances, or discrepancies discovered during an IRS audit. Even honest mistakes or oversights—forgetting to report certain income or credits, for example—can result in a tax liability.

Can the IRS take money from my bank account without notice?

No. The IRS has the authority to levy (seize) funds from your bank account to pay off tax debts, but it must provide notice before doing so. The process involves the IRS sending you a notice demanding payment and informing you of your right to a hearing. If you don’t respond or resolve the debt, the IRS can issue a final notice of intent to levy, often 30 days before taking action. This notice allows you to address the debt or appeal the decision before the IRS accesses your bank account.