Tax Debt FAQs: How To Start Fixing IRS and State Back Taxes

If you owe tax debt, the main official systems you’ll deal with are the Internal Revenue Service (IRS) for federal taxes and your state department of revenue or taxation for state taxes. Most real relief comes from working directly with these agencies (or through qualified helpers who work with them), not from private “tax relief” ads.

Quick answers to the most common tax debt questions

Key terms to know:

  • Tax debt — Unpaid federal or state taxes, plus any added penalties and interest.
  • Installment agreement — A payment plan you set up with the IRS or state to pay tax debt over time.
  • Offer in Compromise (OIC) — A formal request to settle your tax debt for less than the full amount, based on your ability to pay.
  • Tax lien/levy — A lien is a legal claim against your property; a levy is when the IRS or state actually takes money or assets (like wage garnishment or bank account seizure).

Direct answers to FAQs:

  • Will I go to jail for tax debt? Typically, no—most tax debt cases are civil, not criminal; jail is usually linked to tax fraud or intentional evasion, not to simply being unable to pay.
  • Can the IRS or state take my paycheck or bank account? Yes, wage garnishment and bank levies are common collection tools if you ignore notices, but they usually send multiple letters first.
  • Does tax debt expire? Federal tax collection generally has a 10-year collection statute, starting from the date the tax was assessed, but certain actions (like bankruptcy or an Offer in Compromise) can extend that time.
  • Can I just ignore old tax bills? Ignoring notices commonly leads to liens, levies, damaged credit, and added penalties and interest; the debt almost always grows, not disappears.

A concrete step you can take today is to request your official IRS account transcript so you know exactly what years you owe, how much, and what’s already been filed.

Where to start: official tax debt channels (federal and state)

For federal tax debt, the official system is the IRS. For state tax debt, it’s your state’s department of revenue, taxation, or comptroller’s office. Rules, payment options, and forms commonly vary by state and by your situation, so you will often need to deal with both levels separately.

Typical official touchpoints for tax debt include:

  • IRS Individual Online Account portal — lets you see balances, payment history, and set up some payment plans.
  • IRS Automated Collection phone line — for setting up or adjusting payment plans, confirming balances, and asking about notices.
  • State tax agency online portal — usually called something like “Taxpayer Access Point” or “Revenue Online” for state balances and payment plans.
  • Local Taxpayer Assistance Center (TAC) — in-person IRS office for certain issues; usually by appointment only.

First official action you can take today:

  1. Search for the official IRS website and sign in or create an IRS Individual Online Account.
  2. Once logged in, download or print your recent account transcripts and note each tax year with a balance.
  3. In a separate browser tab, search for your state’s official department of revenue or taxation portal (look for addresses ending in “.gov”) and create an account to check for state tax balances.

What to expect next: You’ll see separate balances for each year and possibly separate types of tax (income tax, self-employment, etc.). These balances usually include accrued interest and penalties, which keep running until a resolution is in place.

What you’ll typically need to gather before asking for relief

To request a payment plan, hardship status, or settlement, the IRS or state tax agency usually asks for detailed financial information so they can determine what you can realistically pay.

Documents you’ll typically need:

  • Recent pay stubs or income proof (W-2s, 1099s, or profit-and-loss statement if self-employed).
  • Recent bank statements (often 3–6 months) for all accounts in your name.
  • Recent tax returns (at least the last one or two years, and often all unfiled required years).

Additional items that are often required for more complex relief (like an Offer in Compromise or currently not collectible status):

  • Monthly expense details — rent or mortgage statement, utility bills, health insurance, child care, loan payments.
  • Asset information — vehicle titles and loan balances, home value and mortgage statement, retirement account statements.
  • Collection notices — letters from the IRS (often labeled CP14, CP501, CP503, CP504, LT11, etc.) and from your state agency.

If you’re missing older tax returns, a realistic next move is to use your IRS transcript to reconstruct income (using reported W-2s and 1099s) and file those missing returns, since the IRS typically requires all required returns filed before approving many types of relief.

Step-by-step: how people typically resolve tax debt

Use this sequence as a practical roadmap; you might not need every step, but this follows how tax agencies usually handle cases.

  1. Confirm exactly what you owe and for which years.
    Log into your IRS online account and your state tax portal, and list each year with a balance, the type of tax, and the total owed; if you can’t get online, call the IRS and your state revenue agency using the numbers listed on your notices.

  2. Make sure your required tax returns are filed.
    If any years show “unfiled,” prepare and file those returns as soon as you can; the IRS and states often won’t finalize a long-term solution if required returns are missing, and any “substitute for return” the IRS created may overstate what you owe.

  3. Decide your best-fit option based on ability to pay.
    Common options include:

    • Full payment (possibly using a short-term borrowing option like a low-interest personal loan).
    • Monthly installment agreement (standard payment plan).
    • Partial payment plan (paying less than full over time, if allowed).
    • Offer in Compromise (settle for less than owed, if you qualify).
    • Currently Not Collectible (CNC) status if you truly cannot pay anything without missing basic living expenses.

  4. Apply through the official channel for your chosen option.

    • For a basic installment agreement under certain dollar limits, you can typically apply through your IRS online account or by calling the IRS directly with your bank info and employer details.
    • For an Offer in Compromise, you usually complete Form 433-A (OIC) or 433-B (OIC) plus the OIC application form and send it by mail with an application fee and initial payment, unless you qualify for a low-income waiver.
    • For CNC or hardship review, you typically submit a full Collection Information Statement (Form 433-A/F) along with proof of income, expenses, and assets, usually over the phone or by mail/fax.

  5. What to expect after applying.

    • Installment agreement: If submitted online or by phone, you may get immediate conditional approval; a written notice typically arrives later confirming the monthly amount and due date; penalties and interest usually continue until the balance is paid.
    • Offer in Compromise: The IRS or state often takes several months or more to review; they may request additional documents or propose changes; collections on included years are typically paused during review, but liens may remain.
    • CNC/hardship: If approved, active collection (levies/garnishments) typically stops, but interest and penalties usually keep accruing, and the agency may review your situation again later.

  6. Set up and maintain payments (if applicable).
    Once your payment plan is approved, set up automatic payments from a checking account or through the online portal; missing payments commonly triggers default, which can restart collection actions.

Phone script you can use with the IRS or state revenue agency:

Real-world friction to watch for

Real-world friction to watch for

A common snag is that the IRS or state pauses or denies a relief request because you didn’t respond to a follow-up letter asking for more documents or signatures, which can arrive weeks after you apply. To avoid this, set a reminder to open every letter from the IRS or state tax agency immediately, and call the number on the notice if anything is unclear so you can send the missing items before any deadline.

Legitimate help options and how to avoid scams

Because tax debt involves money and your identity, staying inside legitimate channels matters as much as the plan you choose.

Legitimate help options typically include:

  • IRS Taxpayer Advocate Service (TAS) — an independent office within the IRS that can sometimes help when you face serious hardship or repeated delays; you generally request help by submitting their official form or calling the number on the IRS site.
  • Low-Income Taxpayer Clinics (LITCs) — local, usually nonprofit organizations or legal clinics that offer free or low-cost representation in tax disputes for eligible taxpayers.
  • Licensed tax professionals — Enrolled Agents (EAs), Certified Public Accountants (CPAs), or tax attorneys who are licensed to represent you before the IRS and state agencies; always verify licenses through official boards or professional directories.
  • State-sponsored legal aid or financial counseling programs — many states fund legal aid offices that provide assistance with tax disputes or collection problems for lower-income residents.

Scam and fraud warning:

  • Be cautious of companies that cold-call you, pressure you to “act today,” or promise they can “wipe out” or “erase” your tax debt or guarantee an Offer in Compromise approval.
  • Legitimate government tax sites end in “.gov”; always search for your state’s official department of revenue or taxation portal rather than clicking on ads.
  • Never share your Social Security number, bank info, or IRS account login with anyone who won’t clearly identify their credentials and provide a written service and fee agreement.
  • The IRS and state agencies typically do not demand gift cards, prepaid cards, or payment over text or social media; payments are usually made through official online portals, checks, or established payment processors.

Once you’ve confirmed your balances, filed any missing returns, and chosen a realistic option (like a payment plan or hardship status), your next official step is to submit that request through the IRS online account, IRS forms by mail, or your state’s .gov tax portal, then watch for the written notice that confirms what was approved and what you must do next.