5 Things You Shouldn’t Do If You Owe the IRS at Tax Time

While everyone hopes to come out even or get some money back when they file their taxes each year, sometimes people do end up owing money – and there is a smart way to go about dealing with that. Owing any amount of money to the IRS – large or small – is a scary prospect, but ignoring the debt won’t make it go away any faster. If you’ve completed your income tax return for the tax year and you’re looking at a huge tax bill, it’s best to take care of it right away. A financial advisor can help you figure out what to do with your taxes. Here’s a look at what you don’t want to do if you’re trying to avoid making the situation worse in the long run.

5 Common Mistakes When You Owe the IRS

Owing money to the IRS can be stressful, and handling it the wrong way can make the situation worse. Many people make avoidable errors that lead to added penalties or delays. Here are five common mistakes to watch out for if you owe the IRS.

1. Not Filing a Return

If you owe taxes and you cannot afford to pay, you may think the best thing to do is not file a return at all, but that is not a good idea. When you do not file your return on time, the IRS automatically adds a 5% failure-to-file penalty for every month you owe taxes, up to a maximum of 25%. Additionally, you will pay interest on the bill until it is paid in full.

2. Not Filing an Extension

Requesting an extension gives you until October 15 to file your return. If you file an extension request before the April tax deadline (April 15, 2026 for tax year 2025), you will not have to worry about a failure-to-file penalty. You will, however, still owe a failure-to-pay penalty on any outstanding taxes, which equals 5% of the balance, up to 25%.

3. Not Setting Up a Payment Plan

Closeup of a pen and calculator resting on an agenda.

The IRS does not want to have to chase you for the money you owe. To make it easier for taxpayers to pay, Uncle Sam offers payment plans. If you owe taxes and you cannot pay, it is a good idea to find out whether you qualify for an installment plan.

You may be eligible for a long-term payment plan if you owe the IRS less than $50,000 in income taxes, penalties and interest or a short-term payment plan if your balance is under $100,000. Otherwise, you must complete Form 9465 and mail it to your local IRS office to see what kind of plan you qualify for.

The IRS gives eligible taxpayers up to 72 months to pay their tax debt in full. Keep in mind that interest and penalties will continue to accumulate until the balance is fully paid. If you are owed a refund in any subsequent tax years while you are on the plan, the IRS can subtract those payments from what you owe.

4. Ignoring the Consequences

Aside from the penalties and the interest, there are other penalties for not paying your taxes. Your passport could be canceled, for example, disrupting potential travel plans. The worst-case scenario is that the IRS places a lien against your property or garnish your wages. This is why it is always best to resolve your IRS debt, perhaps through a tax debt settlement, as soon as possible.

5. Choosing the Wrong Way to Pay

If you do not have enough cash to cover your tax bill, you may be considering taking on more debt to do it. Depending on your situation, that could mean borrowing against your home equity, taking out a personal loan or charging it all to a credit card.

The one thing you do not want to do is rush your decision. Take the time to compare interest rates, fees and repayment terms for each option so you know exactly what borrowing is going to cost you. When repaying debt, you do want to risk an even worse situation, so it is important to find a solution that works.

Payment Options for Those Who Owe the IRS

Fortunately, several repayment options are available to help you manage your tax debt effectively so you remain in good standing with the IRS.

Installment agreements. If you cannot pay your tax debt in full, an installment agreement allows you to make monthly payments over time. This option is beneficial for those who need to spread out their payments to avoid financial strain. The IRS offers different types of installment plans, including short-term and long-term agreements, depending on the amount owed.
Offer in compromise. An offer in compromise (OIC) allows you to settle your tax debt for less than the full amount you owe. This may apply if you can demonstrate that paying the full amount would cause financial hardship. The IRS considers your income, expenses and asset equity to determine eligibility for an OIC.
Currently not collectible status. If you are unable to pay your tax debt due to financial hardship, you may qualify for currently not collectible (CNC) status. This temporarily halts IRS collection activities, giving you time to improve your financial situation. However, interest and penalties will continue to accrue during this period.
Credit card payments. Paying your tax debt with a credit card is a convenient option if you prefer to manage payments through your credit provider. While this method can help you avoid immediate penalties, be cautious of potential interest charges from your credit card company that can quickly add to your debt.
Direct debit. Direct debit allows you to automate your tax payments directly from your bank account. This option ensures timely payments so you can avoid late fees. It is a reliable choice for those who prefer a hands-off approach to managing their tax obligations.

How to Avoid Owing the IRS Next Year

Avoiding future tax debt requires proactive planning and regular review of your tax situation throughout the year. Many taxpayers fall short because of inaccurate withholding, unplanned income or failure to keep up with estimated tax obligations. These issues can often be corrected with timely adjustments and consistent monitoring. A review of current withholding levels helps determine whether enough funds are being taken out of each paycheck.

Form W-4 allows for adjustments to better align with expected tax liability. The IRS provides a Tax Withholding Estimator that can help identify whether current settings are on track based on income, deductions, credits and filing status. Updating the W-4 is particularly important after major life events, such as marriage, divorce, a new job or changes in dependent status.

Self-employed individuals and those with side income must calculate and submit quarterly estimated payments to the IRS. Estimated tax payments should reflect both federal income tax and self-employment tax obligations, which cover Social Security and Medicare contributions. Underpayment across quarters can result in penalties, even if the balance is paid by the tax deadline. Reviewing prior year earnings and projecting income accurately can help maintain compliance and avoid surprise balances.

Investment income, capital gains, rental income and freelance work often lack automatic withholding. These sources should be tracked carefully. Setting aside a percentage of this income in a separate account designated for tax payments helps avoid shortfalls and provides liquidity when quarterly deadlines approach. Any tax-advantaged account contributions, like IRAs or HSAs, should be factored in, as they may lower taxable income and reduce your required payments.

Working with a tax advisor or preparer during the year—and not just at filing time—can provide clarity on tax exposures and identify steps to reduce or spread out liability. Ongoing tax planning may include adjusting investment strategies, timing income and deductions or reevaluating eligibility for tax credits. By treating tax obligations as a year-round process rather than a once-a-year event, taxpayers can better manage their cash flow and reduce the risk of owing again.

Bottom Line

Paying taxes is never pleasant, especially when you are not expecting a bill you cannot afford. Facing it head-on is the best approach if you do not want to risk deeper trouble with the IRS. Just ensure you address the problem right away and figure out a way to resolve it quickly so you do not risk worse penalties.

Tax Planning Tips

A financial advisor can help you optimize your financial plan to mitigate your tax liability. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Check what your income tax bill could be using SmartAsset’s free online calculator.