IRS Tax Relief Options: Payment Plans, Hardship and Penalty Relief
The IRS offers four main forms of relief to people who owe: a payment plan (installment agreement), currently not collectible status when paying would prevent meeting basic living expenses, penalty relief, and an offer in compromise that settles for less than the full amount. Each has its own test, and the guides below explain them from IRS.gov and the tax code.
These options are not exclusive. A taxpayer can ask for penalty relief and also set up a payment plan, and the IRS reviews whether an offer in compromise is realistic against what a payment plan could collect. The comparison below shows which situation each option is built for.
The four main relief options
Installment agreement (payment plan)
For a balance that can be paid over time. Individuals can apply online for a long-term plan when, in the IRS’s words, “You owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.” The IRS also says it “will generally not take enforced collection actions” while a plan “is being considered” or “is in effect.” The guide covers every plan type, the 2026 fees and what causes a default.
Currently not collectible status
For people who cannot pay anything right now. The IRS explains: “If you can’t pay any of the amount due because payment would prevent you from meeting your basic living expenses, you can request that the IRS delay collection until you’re able to pay.” It is a pause, not forgiveness: “You still owe the full amount of your tax debt.”
Penalty abatement
For penalties added to the balance. The IRS lists three kinds of relief: first-time abatement and administrative waiver, reasonable cause, and statutory exception, and says “We’ll automatically reduce or remove the related interest if any of your penalties are reduced or removed.” First-time abatement is changing: “FTA is transitioning to a new relief called Automatic Exemption from Penalty (AEP), starting Summer 2026.”
Offer in compromise
For a debt that cannot realistically be paid in full. The IRS says an offer “may allow you to settle your tax debt for less than the full amount you owe if you can’t pay in full or doing so would cause financial hardship,” but “Generally, we won’t accept an offer if you can pay your tax debt in full through a payment plan and/or equity in assets.”
Hearings, court and spousal relief
Collection Due Process hearing
For a lien or levy notice that offers a hearing. The IRS describes a CDP hearing as “an opportunity to discuss alternatives to enforced collection” that “permits you to dispute the amount you owe if you have not had a prior opportunity to do so.” The guide covers Form 12153, the 30-day and one-year windows, and what a timely request suspends.
Tax Court petition
For a notice of deficiency or an Appeals determination. The Tax Court says it “cannot extend the time for filing which is set by statute.” The guide covers the 90-day and 30-day periods, Form 2 and the filing fee, small tax cases, and who may represent a petitioner.
Innocent spouse relief
For a joint return balance caused by the other spouse. Under 26 U.S.C. § 6013(d)(3), liability on a joint return “shall be joint and several.” The guide covers the three types of relief under § 6015, Form 8857 and its deadlines, and Tax Court review.
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Which option is built for which situation
| Situation | Option the IRS describes | Debt reduced? |
|---|---|---|
| Can pay within 180 days | Short-term payment plan | No |
| Can pay monthly over a longer period | Installment agreement | No (the failure-to-pay rate can drop to 0.25% a month) |
| Cannot pay basic living expenses and the tax | Currently not collectible | No, collection is paused |
| Penalties were charged | Penalty relief | Penalties and their interest only |
| Full payment is not realistic | Offer in compromise | Possibly, if accepted |
The reduced penalty rate during a plan comes from the IRS: “If you filed your tax return on time as an individual and you have an approved payment plan, the failure to pay penalty is reduced to 0.25% per month (or partial month) during your approved payment plan.”
Related guides
Talk to an IRS tax attorney about your options
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Sources
- IRS: Payment plans; installment agreements
- IRS: Failure to pay penalty
- IRS: Topic no. 202, Tax payment options
- IRS: Temporarily delay the collection process
- IRS: Penalty relief
- IRS: Administrative penalty relief
- IRS: Offer in compromise
- IRS: Collection Due Process (CDP) FAQs
- U.S. Tax Court: About petitioners
- 26 U.S.C. § 6013
IRS Circular 230 Disclosure: To ensure compliance with Treasury Department rules governing tax practice, any tax information contained on this website was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty. You should consult a licensed tax professional regarding your individual situation.
Results described on this website are not a guarantee, warranty, or prediction of the outcome of any tax matter. Every situation is different. Prior results do not guarantee a similar outcome. Article content reflects general information about federal tax procedure as of the last reviewed date and may not reflect subsequent changes in IRS policy, regulations, or case law.