If you’re struggling with tax debt in 2025, you’re not alone. CNBC recently reported that among those who owe taxes to the IRS, 25% of them expect to go into debt in order to pay their tax bill. 

Many Americans face challenges with unpaid taxes due to a variety of reasons, such as job loss, medical expenses, or unexpected financial hardships. The good news is that there are several options available to help you settle your tax debt, whether you owe the IRS or another tax authority. 

Understanding the best route for your situation is key to finding relief and putting the stress of tax debt behind you.

Let’s examine a breakdown of how you can settle your tax debt this year.

Offer in Compromise (OIC)

One of the most popular tax debt settlement programs is the Offer in Compromise, or OIC. 

An OIC allows you to settle your tax debt for less than what you owe, but only if you can prove that paying the full amount would cause financial hardship. 

In 2025, the IRS continues to use a detailed assessment process to determine if you qualify. The key factors the IRS considers include your income, assets, living expenses, and ability to pay.

If your OIC is approved, the IRS may accept a reduced payment that you can make either in a lump sum or through monthly installments. The OIC can be a life-changing option, but it requires extensive paperwork and a clear demonstration of financial distress.

[Important: Working with Traxion Tax to create a strong, well-documented OIC can increase your chances of approval by up to 70%. Contact us today to schedule a risk-free consultation about your case.]

Installment Agreements

If an Offer in Compromise isn’t right for you, an Installment Agreement may be the next best option. 

This is a payment plan that allows you to spread your tax debt into manageable monthly payments. The IRS offers both short-term (up to 180 days) and long-term payment plans, depending on your financial situation and the amount of debt owed.

In 2025, streamlined installment agreements have become more accessible, especially for individuals who owe less than $50,000. For larger debts, the IRS may require you to submit a Collection Information Statement to assess your ability to pay. 

It’s important to remember that interest and penalties will continue to accrue until the full debt is paid off, so timely payments are critical.

Currently Not Collectible (CNC) Status

If you’re unable to make any payments due to extreme financial hardship, you may be able to qualify for Currently Not Collectible (CNC) status. 

Acquiring CNC status doesn’t forgive your tax debt, but it stops IRS collection efforts temporarily. Once granted, the IRS will not garnish your wages, levy your bank accounts, or seize your property while you’re in CNC status.

However, penalties and interest will continue to accumulate on your unpaid taxes, and the IRS will periodically review your financial situation to determine if you’re able to pay. In 2025, CNC status remains a viable short-term option for those facing severe financial difficulties.

Penalty Abatement

In some cases, the IRS may grant a penalty abatement, which can significantly reduce the total amount you owe. 

A penalty abatement is essentially a permanent removal of some or all of the penalties that have accrued on top of the original tax debt. 

Common reasons for penalty abatement include experiencing a natural disaster, a death in the family, or receiving bad tax advice. If you can demonstrate reasonable cause for missing tax deadlines, you might qualify for penalty relief.

Taking Action in 2025

Navigating the complexities of tax debt settlement can be overwhelming, especially when the rules and criteria seem to change year by year. In 2025, the IRS continues to provide multiple avenues for resolving your debt, but it’s essential to understand the eligibility requirements and consequences of each option.

Keep in mind that you don’t have to tackle the challenge of settling your tax debt on your own. Traxion Tax has helped countless taxpayers find the right solution for their unique circumstances, using trusted guidance, expert Enrolled Agent representation, and ongoing education to fully resolve your tax debt once and for all. 

Whether you’re considering an Offer in Compromise, an installment plan, or seeking penalty abatement, we’re here to guide you through every step of the process.

Contact us today for a risk-free consultation and discover how we can help you regain control of your financial future.