If you owe the IRS money, expect notifications letting you know what you owe and when you should pay. The faster you pay what you owe, the more penalties and interest you will avoid.
However, do not panic if you receive a notice saying you owe taxes. The IRS follows a predictable process, and understanding how it operates makes the process easier to navigate.
What notices you can expect first
If you owe money, you will receive a CP14 notice after you file your taxes. This will explain how much you owe and how to pay it, and request that you pay it off within 21 days. Ideally, pay what you owe right away. The IRS sends this within 60 days of your assessment.
Do not forget about interest and penalties. The failure to pay penalty is 0.5% of what you owe per month or part of a month, capped at 25% of the total unpaid amount. The interest rate is the federal short-term rate plus 3%. It compounds daily, which means your balance can grow quickly.
What to expect next
If you do not pay what you owe, you will get two reminders from the IRS: the CP501 then CP503 notices.
The IRS can get more aggressive with levies, garnishments and liens if you do not pay. For example, it can levy bank accounts and garnish up to 15% of your Social Security benefits. Depending on how much you owe, the State Department is allowed to revoke your passport because of unpaid debt. You will get a Notice CP508C if you are at risk.
The agency cannot try to collect forever. There is a 10-year expiration date—but over that time, penalties and interest will accumulate. Plus, the clock can be stopped for various reasons, like if you file for bankruptcy.
What to do if you owe taxes
If you can pay all or part of your balance now, you can do so online directly from your bank account. Other options include a same-day wire, check or money order through the mail, or cash through a retail partner.
If you cannot pay it all immediately, you can set up a payment plan. There are short-term plans for those who owe less than $100,000, which gives you an extra 180 days to pay the balance in full. Another option is a long-term installment plan for those with a balance of less than $50,000. You can make monthly payments for up to 72 months. You may also be eligible to delay collections if you are facing financial hardship.
You can visit the IRS website or call them directly to get your exact balance, which will make it easier to plan out how you will repay it. Depending on your situation, you may want to contact a tax professional to decide the best route to take.