Did you know that Americans owed over $114 billion to the IRS in back taxes, interest, and fines in 2020? Although there are many penalties for falling behind on taxes, millions of people are in debt to the IRS. If you're one of them, you aren't alone.

There's no reason to overreact, even if you don't have the cash to pay off your debt to the IRS. As stressful as this situation may be, you have several tax debt relief options.

This post will cover four in detail, sharing the pros and cons of each choice. So, keep reading to learn more about how to settle tax debts!

Option 1: Pay Liability in Full

Your first option is to pay your debt to the IRS in full. Although not everyone has the financial means to do so, paying off your debt will prevent you from accruing interest on your account. Plus, the IRS will likely afford you up to four months to gather the funds needed to pay off the liability if you select this option. 

Not having to deal with the IRS collection actions will be a breath of fresh air, allowing you some relief despite the financial strain it may cause. 

Option 2: Ask for Currently Non-Collectible Status

If you owe the IRS but can't pay your debt due to a dire financial situation, you can ask for non-collectible status (NCS). If the IRS decides that you can't pay your essential living costs and your taxes at the same time, they'll grant your NCS. 

While it's not a permanent solution, asking for NCS will give you short-term relief and stop collection activity temporarily. Unfortunately, your account will still accrue interest during this time. 

Option 3: Enter into a Payment Agreement With the IRS

If you don't have enough to pay your tax debt in full, you can make an arrangement with the IRS that allows you to settle your tax debt in installments. 

The payment agreement will tax your financial situation into consideration, although it may not be as flexible as you would like since it is based on collection standards. The collection agents often insist you pay the maximum amount you can afford, which may be difficult if you are pressed economically. 

As long as you make the payments, IRS collection actions will stop. However, you will still accrue interest on your remaining balance. This may be a lot in some cases, such as when you owe back payroll tax. 

Option 4: Settle with the Offer in Compromise Program

The IRS allows you to settle your debt with them for less through an offer in compromise. After considering factors like your ability to pay, expenses, income, and equity, they may be willing to accept a reasonable offer. 

Not everyone gets approved for an offer in compromise, so it's best to work with a professional if you are considering this program. 

Get Tax Debt Relief Today

After reading this brief post, we hope you have a better idea of which tax options are right for you. If you need more advice, we recommend consulting a tax debt relief professional who can help you achieve tax resolution once and for all!

Would you like to read more finance articles that can help you get you back on your feet? If so, check out more of our content!