Taxpayers who are unable to pay their IRS tax debt in full could get relief and settle their IRS tax debt for less than they owe through an offer in compromise or a partial pay installment agreement with the IRS.

What is a Tax Debt?

Simply put, an IRS debt is the amount of taxes owed during a certain tax period that should have been remitted to the IRS. Paying an IRS tax debt should not be a difficult task, it is closely and religiously monitored by the IRS. Employers, in particular, should routinely calculate and withhold payroll tax from their employee’s paychecks and properly forward them to the tax agency. People who have their own businesses are also subject to such IRS debt known as self-employment tax, and should be able to manage and pay these taxes in a timely manner, so as to avoid getting penalized by the IRS.

Federal or State Tax Agencies

Federal tax agencies such as the Internal Revenue Service (IRS) have a system of determining the total amount of tax debts for a tax year/season easier because they receive annual return reports which reflect the value of money that a certain taxpayer makes as wages, self-employment or investment income through W2’s and 1099’s. This way, it is easy to compare such figures with the total amount of taxes paid for the duration of the filing period. Whenever the amount of paid taxes is in excess with the amount owed, refunds are granted to the taxpayer as they file accordingly. However, if the amount of collected taxes is less than the actual IRS debt owed, the taxpayer is still responsible for compensating the IRS or the State with the outstanding debt.

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Do you need to settle tax debt with the IRS? If so, you need to know which tax settlement method is best. With so many options to choose from, it is important to know the ins and outs of each one. This is the only way to ensure that you are making the right decision, and doing what is best from both a personal and financial perspective.

Here are several common tax settlement methods and why you should think about using them:

1. Paying in full

This method is common for many reasons. To start, you get your debt out of the way quickly and without a lot of paperwork and wasted time. If you know how much money you owe, and you have that sum available in cash, you can pay your debt in one lump sum. You may even want to think about paying in this manner if you can secure a bank loan at a very low interest rate but in no way should you pay with a credit card as interest rates are typically much higher than bank loans or IRS payment plan rates. Even though it can be difficult to part with such a large sum of money, it makes sense for many reasons if you are in position to do so.

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