What to do if you can’t pay your taxes

Tax day is fast approaching and that means millions of Americans are busy assembling their tax returns. While many Americans look forward to refunds, some will find themselves sending payments to Uncle Sam. And, unfortunately, not everyone will have the money to pay their taxes.

The Internal Revenue Service reports that as of 2020, more than 11 million Americans owed back taxes. With more people relying on the so-called gig economy, earning money by giving rides through platforms like Uber or through making deliveries through Doordash, unpaid tax bills and delinquent payments may rise. That’s because you have to pay taxes on such income, and often, it’s not automatically withheld.

So what do you do if you can’t pay your taxes?

Two tips:

First, don’t panic. While people get sent to jail over tax issues, it’s typically due to tax fraud and serious, willful crimes. Americans can’t be jailed simply because they’re unable to pay their income taxes. But the IRS can make your life difficult, with steep fines, property liens, and seizing your bank accounts.

Second, never ignore the problem. You still want to file your taxes on time even if you can’t make your payments. Not filing your taxes is a crime and you could find yourself in legal trouble for not doing so. You’ll also get hit with late filing fees. In some cases, you can set up monthly payment plans with the IRS. This way, you can pay your taxes in monthly installments. Payment plans will still incur fees and penalties, however.

If you can’t pay your taxes, sometimes you can reach an agreement with the IRS to settle for a lesser amount. This is called “payment in compromise” and the IRS will closely review your income and financial situation before settling.