IRS Currently Not Collectible: What If You Can’t Pay the IRS?

If you are living paycheck to paycheck, or have more debt than you can pay, one of the consequences may be a tax bill that you can’t afford. If you can’t pay your tax bill on time, you’re not alone. While 84.9% of taxpayers pay what they owe by the tax deadline, there are millions of taxpayers a year who, whether they file their tax return on time or not, just can’t pay.

Owing money to the IRS can be scary, but it doesn’t have to be. There are solutions for people who can’t pay their taxes, including IRS Currently Not Collectible (CNC) status.

CNC is a temporary solution that can give you the break you need to pay what you owe, but whether it’s a good solution depends on your individual financial situation. Let’s take a look.

IRS Currently Not Collectible

To attain Currently Not Collectible status, you must be able to prove to the IRS that you don’t have the money to pay your taxes, even in monthly installments. If the IRS agrees, you can defer what you owe.

Once you are Currently Not Collectible, the IRS won’t try to collect taxes from you until it determines you’re able to pay. The IRS uncollectible statute of limitations is 10 years, meaning that the agency has 10 years to collect back taxes.

The key word to CNC status is “currently,” which means not forever. If you are approved as Currently Not Collectible, your debt to the IRS is not forgiven. CNC is simply a form of taxpayer debt relief that gives you a break until you can afford to pay. The break is conditional. Interest and penalties will still accrue, which means the amount you owe will increase during the time your payment is deferred, and the IRS will also keep returns from future tax years to put toward what you owe.

To become Currently Not Collectible, you must apply and provide documentation, including IRS Form 433 non-collectible status.

The IRS will review your finances annually to determine if you can now pay.

Who May be Eligible for Currently Not Collectible?

Anyone who owes taxes to the IRS but can’t pay, even in installments, is eligible for Currently Not Collectible status. You may be:

• Self-employed, which means responsible for paying your own taxes
• Receiving Social Security but also earning income from another source
• Collecting unemployment or other taxed benefits, but it’s not enough income to cover monthly expenses
• One of millions of Americans in debt who can’t pay monthly bills

You’ll need documentation to prove to the IRS that you can’t pay.

How to Request CNC Status

You must contact the IRS to apply for CNC status.

If you’ve received a notice from the IRS stating that you owe money, use the contact information on the notice. If you don’t have the notice, or didn’t receive one, the IRS asks that you call 800-829-1040 (or TTY/TDD 800-829-4059 if you are an individual taxpayer. Call 800-829-4933 if you are a business.

When applying for Currently Not Collectible status, the IRS may ask that you:

• File any past due returns.
• Complete Form 433-A Collection Information Statement (CIS) for Wage Earners and Self-Employed Individuals (433-F or 433-B for those filing as a business)
• Provide documentation to support items listed on your CIS

The IRS will continue to charge monthly late payment penalties and interest on the balance that you owe, which means that the amount you ultimately pay will increase. You will also be required to continue to make estimated tax payments for current tax years if you are self-employed, and federal tax deposits if you are a business.

The IRS also has amount limits on some expenses. For instance, it only allows a certain amount to be claimed for a monthly car payment.

When you talk to the IRS agent, they may suggest other options for how to settle your IRS tax debt. One that millions of taxpayers who can’t pay by April 15 take advantage of is an IRS payment plan, in which you agree to pay in monthly installments until your tax debt is cleared, as long as you owe less than $50,000. Fees, penalties, and interest will increase the amount you end up paying.

You can also opt for a short-term payment plan if you can pay within 180 days. There is no fee for this plan, but interest is charged.

If you can’t pay in installments, and your financial situation has no chance of improving, the IRS may agree to an Offer in Compromise, in which it accepts a reduced amount as payment of what you owe.

Types of Documentation

The types of documentation the IRS will require when you apply for Not Currently Collectible status may include:

• Recent pay stubs and other income verification
• Most recent real estate tax bill or documentation of rent payment
• Copies of utility and insurance bills
• Auto loan, other loan, and credit card statements
• Proof of assets like savings accounts, stocks, and bonds
• Proof of monthly expenses for food, transportation, day care, medical, court-ordered payments, etc.

Advantages of Currently Not Collectible Status

If you don’t have the money to pay the taxes you owe, there are advantages to filing for Currently Not Collectible status that include:

• You have time to pay without the IRS trying to collect from you or garnishing wages.
• If your situation doesn’t improve in 10 years, you pass the collections statute of limitations, and the IRS forgives what you owe, including penalties and interest.

Disadvantages of Currently Not Collectible Status

While currently Not Collectible Status will temporarily give you a break on paying federal taxes, there are disadvantages that include:

• Interest and penalties are still assessed, increasing the amount you owe.
• The IRS will take your future tax returns to help pay down your balance.
• It is not a permanent solution. Your financial situation is reviewed every year, and the IRS can revoke your CNC status if it determines you are able to pay.
• If you owe more than $10,000 the IRS may still place a lien on your property until your debt is paid.

Additional Resources for Debt Relief

If you are having trouble paying the IRS, you are likely having trouble paying other bills as well. You’re not alone. By the end of 2023, total household debt in the U.S. was at an all-time high of $17.5 trillion, with credit card balances accounting for $1.13 trillion and auto loan balances $1.61 trillion. It’s no surprise that with those numbers, credit and loan delinquency rates are way up as well.

Being in debt to the IRS can be scary, but a plan for how to avoid jail when you owe back taxes will make it less so. The first step is to acknowledge the problem and not ignore it. The IRS doesn’t go away if you owe money.

If you owe back taxes to the IRS, can’t pay an installment plan and there isn’t a chance your financial situation will improve in the future, the IRS may agree to an Offer in Compromise. This means that they will settle the tax debt for less than you owe. To qualify, you must have filed all tax returns, have received a bill for at least one tax debt included on the offer, and made all required estimated tax payments for the current year.

You may wonder, does bankruptcy clear tax debt? The answer is no, accept in cases of fraud, mistakes or an undue hardship.

If the IRS tax debt options will not solve your overall debt problems, particularly if you’re asking about bankruptcy as a way out of tax debt, you should consider bigger-picture debt-relief solutions.

Talking to a counselor at a nonprofit credit counseling agency will give you the tools you need to decide what the best debt-relief option is for your situation. The counselor will review your finances with you, help you create a budget, and discuss debt-relief options like debt management plans, debt settlement, debt consolidation and bankruptcy.

The consultation is free, and counselors at nonprofit debt management agencies are required by law to give you advice that’s in your best interest, not to sell you a product. You can find one that’s a good fit, as well as other debt relief resources, at the National Foundation for Credit Counseling.