What is Tax Debt? A Comprehensive Guide to Resolving Your IRS Tax Debt and Options

Individuals and organisations alike might find themselves frustrated and overpowered by the experience of having to deal with tax debt.

The Internal Revenue Service (IRS) takes tax debt very seriously and has the authority to take measures to collect on it, including garnishing wages, levying bank accounts, and seizing property.

Taxpayers who find themselves in a position where they are unable to pay their tax liability are fortunate in that they have access to a variety of IRS Tax Debt Settlement Services to help them deal with the situation.

In this article, we will discuss all you need to know about tax debt, including what it is, how to calculate it, and the several alternatives you have for resolving it.

What is Tax Debt?

The total amount of money that is owing to the government as a result of taxes that have not been paid is referred to as tax debt.

This can include many types of taxes such as the federal income tax, payroll taxes, and self-employment taxes, among others.

The debt may have been incurred as a consequence of a number of mistakes, such as underreporting income or neglecting to pay anticipated taxes, or it may have been because the individual was unable to pay the entire amount that was required.

How to Calculate Your Tax Debt for IRS Tax Settlement?

The first thing you need to do in order to get out from under your tax burden using the IRS Tax Debt Settlement Program is to calculate how much money you still owe.

  • The quickest approach to accomplish this is to contact the Internal Revenue Service (IRS) and ask for a copy of your tax transcript.
  • This document will include your annual tax due, as well as any payments that have been made to satisfy that responsibility.
  • You may submit a request for a tax transcript to the IRS either in written form by mail or electronically via their website.

Options for Resolving Tax Debt

Once you know how much you owe, the next step is to explore your IRS Tax Settlement options for resolving your tax debt.

Here are some of the most common options:

1. Payment Plan

An arrangement between the taxpayer and the Internal Revenue Service (IRS) to resolve outstanding tax debts is known as a payment plan for IRS tax debt settlement.

The taxpayer is given the opportunity to repay their debt in equal monthly instalments over the course of a predetermined amount of time, which can range anywhere from three to seventy-two months on average.

Eligibility for IRS Tax Debt Settlement Services

  • A taxpayer is only qualified for a payment plan if they have submitted all of their appropriate tax returns and are currently on all of their tax obligations at the time of applying for the plan.
  • In addition, the taxpayer must consent to continuing to pay their tax arrears as they fall due during the term that the payment plan is in effect.

Important Note: In the event that the taxpayer does not comply with the conditions of the payment plan, the Internal Revenue Service (IRS) reserves the right to terminate the agreement and seek additional collection proceedings, such as the garnishment of wages or the seizure of assets.

2. Offer in Compromise

An Offer in Compromise is a tax settlement programme that is made available by the Internal Revenue Service (IRS) to assist taxpayers who have an outstanding tax liability but are unable to pay the total amount owed.

  • Eligibility: Taxpayers must be able to demonstrate that paying the entire amount would put them in a difficult financial position or that the amount that is owing is inaccurate in order to be eligible for this deduction.
  • Submission: In order to be considered, the offer must be made in writing and accompanied by a payment of $205, which is not refundable.
  • Assessment: The Internal Revenue Service (IRS) will conduct an assessment of the offer by considering the taxpayer’s assets, income, and spending.
  • Approval: In order for the taxpayer to receive approval, they must first agree to comply with all of the applicable tax rules and to make on-time payments for any future tax obligations.
  • Rejection: If the offer is declined, the taxpayer has the right to file an appeal against the decision or look into other possible resolutions.

It is essential to keep in mind that the Internal Revenue Service examines each Offer in Compromise thoroughly, and that only a small fraction of them are accepted.

If you want to enhance your chances of having a positive result, you should seek the aid of a reputable company providing the IRS Tax Debt Settlement Program.

3. Currently Not Collectible

Taxpayers who are unable to pay their tax obligation are given the designation of “Currently Not Collectible” by the Internal Revenue Service (IRS).

  • To be eligible for this type of IRS Tax Debt Settlement Services, taxpayers need to provide evidence that paying their tax liability would put them in an intolerable financial position.
  • Request: In order to request the status, you will need to provide a financial statement as well as verification of your income and spending.
  • Temporarily: The status is only temporary, and it will be reassessed in the future if there is a change in the taxpayer’s current financial circumstances.
  • Collection Efforts: While a taxpayer is in Currently Not Collectible status, the Internal Revenue Service (IRS) will put a temporary hold on all collection actions, including bank levies and wage garnishments.
  • Interest and Penalties: Both interest and penalties will continue to be added to the taxpayer’s total tax liability as long as the tax obligation is not paid in full.

It is essential to keep in mind that having a tax obligation categorised as Currently Not Collectible does not result in the debt being eliminated, and it is still the duty of the taxpayer to settle the amount at some point in the future when their financial status improves.

4. Bankruptcy

Under the terms of the IRS Tax Debt Settlement Program, declaring bankruptcy is one of the options available for settling tax debt.

  • To determine if a taxpayer is eligible to include their tax liability in a bankruptcy case, several requirements must first be satisfied.
  • Forms of Declaring Bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy are the two varieties of personal bankruptcy that can be utilised to discharge tax obligations.
  • The taxpayer’s tax liability may be discharged (eliminated) through the filing of a Chapter 7 bankruptcy, which is commonly referred to as a “liquidation” bankruptcy.
  • The taxpayer is given the opportunity to settle their tax burden over a period of three to five years when they file for bankruptcy under Chapter 13, which is often known as a “reorganisation” bankruptcy.
  • Repercussions for Credit: The taxpayer’s credit will suffer severe damage if they choose to pursue bankruptcy as a debt relief option.

It is crucial to contact an attorney or a IRS Tax Debt Settlement Services provider who specialises in bankruptcy law in order to assess whether or not bankruptcy is the best choice for settling tax debt and to have an understanding of the repercussions of filing for bankruptcy.


In conclusion, tax debt may be a substantial burden on both people and businesses. The Internal Revenue Service takes tax debt seriously and has the power to collect it through a variety of means.

However, taxpayers who are unable to pay their tax debt have access to a variety of IRS Tax Debt Settlement Services that can assist them in resolving the issue.

These services include payment plans, compromise offers, and presently not collectable status.

Taxpayers must fulfil certain eligibility conditions for each service, and in some cases penalties and interest will continue to accumulate until the amount is paid in full. Consider getting the services of a reliable organisation that offers the IRS Tax Debt Settlement Program if you have tax debt.