What happens if you owe the IRS more than $25,000?

The realization that you owe the Internal Revenue Service (IRS) a substantial amount of money can feel like a major crisis. A tax debt exceeding $25,000 isn’t just a bill, after all — it’s a financial situation that demands immediate attention. For many taxpayers, though, this type of tax debt accumulates slowly — perhaps through underpayment over several years, a major financial windfall that wasn’t properly accounted for or a business venture that didn’t set aside enough for taxes. So, while this type of tax bill is a big issue, it can also sneak up on you if you aren’t careful.

Whatever the cause, though, once your tax debt crosses the $25,000 threshold, the IRS implements specific procedures and may take more aggressive collection actions than they would for smaller amounts. But the good news is that there are strategies you can use to deal with the issue, even if you’re facing this type of substantial tax debt. After all, while the IRS is certainly interested in collecting what’s owed, the agency also recognizes that being inflexible with taxpayers isn’t in anyone’s best interest. 

But what exactly happens if you owe the IRS more than $25,000 — and what options do you have for resolving this type of tax debt?

Find out how to get help with your IRS tax debt.

What happens if you owe the IRS more than $25,000?

When your tax debt exceeds $25,000, the IRS tends to bring out more serious collection tools. To start, you’ll typically receive a series of notices, culminating in a Final Notice of Intent to Levy that gives you 30 days to respond before the IRS can begin seizing assets.

The $25,000 threshold is significant because it affects your payment plan options. For debts below this amount, you can typically set up a streamlined installment agreement online with minimal documentation. For debts above $25,000, though, the process becomes more complex, and you’ll need to complete detailed financial statements that disclose your income, expenses, assets and liabilities.

The IRS may also file a Notice of Federal Tax Lien if your unpaid assessment exceeds $10,000 — so a $25,000 tax debt would likely result in this action taking place. This public document alerts creditors that the government has a legal claim against your property, including property acquired after the lien is filed. As a result, a tax lien can severely damage your credit score and make it difficult to sell assets or obtain new credit. For debts exceeding $25,000, the IRS may also:

• Garnish your wages, leaving you with only a small portion deemed necessary for basic living expenses
• Seize bank accounts without going to court
• Take valuable assets like cars, real estate and business equipment
• Revoke or deny passport renewal if your tax debt exceeds $50,000
• Assign your case to a revenue officer who will investigate your financial situation in person

Speak to a tax relief specialist about your options now.

How to get rid of large tax debts you can’t pay

If you have a large tax debt with the IRS and don’t have the means to pay it off in full, these options may be worth considering:

Set up an IRS payment plan

The IRS offers payment plans (or installment agreements) that allow you to pay your tax debt over time. If you owe more than $25,000, you may need to provide financial information to qualify. The most common options include:

• Short-term payment plans: If you can pay the debt within 180 days, this is the simplest option.
• Long-term installment agreements: This allows you to make monthly payments over several years, but you may be required to set up direct debit if your debt exceeds $25,000.

Apply for an Offer in Compromise 

An Offer in Compromise (OIC) allows you to settle your tax debt for less than what you owe, but it’s not easy to qualify. The IRS will review your financial situation to determine if accepting a lower amount is in the agency’s best interest. If approved, you’ll be able to pay off your tax debt for a fraction of the original amount.

Request “Currently Not Collectible” status

If you’re experiencing extreme financial hardship, you can request that the IRS temporarily stop collection efforts. This doesn’t erase your debt, but it can give you breathing room while you get back on your feet. Interest will continue to accrue during this time, however.

Work with a tax relief company

If dealing with the IRS feels overwhelming, tax relief companies specialize in negotiating on your behalf. These experts can help set up payment plans, file for an Offer in Compromise and protect you from aggressive collection actions. 

The bottom line

A tax debt exceeding $25,000 is a serious issue, but there are still options to consider in these cases. For some, an installment agreement makes sense. Others may benefit from pursuing an Offer in Compromise or temporarily halting collections through Currently Not Collectible status. Whatever path you choose, though, consider consulting with a tax professional who can guide you through the process. While there may be costs involved, professional assistance often pays for itself by securing more favorable terms, preventing collection actions and providing peace of mind during a stressful time.

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Stephen Collopy

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