How Does Tax Relief Work?

What Is Tax Relief?

Tax relief covers a range of government programs and provisions that help lower your tax bill and make paying it easier. Tax relief measures include routine tax deductions and tax credits, as well as IRS debt relief programs that offer payment plans, partial forgiveness or penalty relief for taxpayers experiencing financial hardship.

Taxpayers who owe the IRS money may be curious about tax relief services. A tax relief (or tax settlement) service can help you negotiate with the IRS to lower your tax bill or work out a payment plan. Although outside help of this kind can be useful, taxpayers should be cautious about whom they hire.

How Does Tax Relief Work?

Tax relief lowers your tax liability through a range of IRS tax provisions, and can make your tax bill easier to pay with tax debt relief programs. Here's how these two types of tax relief work.

• Tax provisions: The deductions, credits and exclusions that are built into tax return calculations help minimize the amount of tax you owe. Many tax deductions, credits and exemptions are permanent, but some adjust periodically for inflation. Some are temporary, as when child tax credits increased for a few years during the COVID-19 pandemic.
• Debt relief: If you owe money to the IRS, you may be subject to penalties, interest, tax liens or seizure of assets. That said, the IRS has multiple programs to help you manage IRS debt, including partial debt forgiveness, penalty abatement and installment plans.

Learn more: What Happens if You Don't Pay Your Taxes on Time?

Types of Tax Relief

Here are some of the main ways you can use IRS tax relief measures to lower your tax bill or manage your IRS debt.

Tax Deductions

A tax deduction reduces your taxable income and lowers the amount of income tax you pay. The IRS allows you to claim individual (or itemized) deductions, such as mortgage interest or medical expenses, or take a standard deduction that adjusts each year for inflation.

• Standard deduction: The standard deduction for 2025 is $15,000 for single taxpayers, $22,500 for heads of household and $30,000 for married couples filing jointly. For most people, the standard deduction saves more money than itemizing.
• Itemized deductions: The long list of itemized deductions includes the interest you pay on your primary mortgage, up to $10,000 in state and local taxes (such as property tax and sales tax), charitable contributions, medical expenses that exceed 7.5% of your adjusted gross income and more.

Tax Credits

Tax credits lower your tax bill directly, dollar for dollar. Commonly claimed tax credits include the earned income tax credit for low- and middle-income taxpayers, and the child tax credit for parents of qualifying children ages 17 and younger.

Exemptions and Exclusions

Tax exempt (or tax excluded) income isn't subject to income taxes. Common examples of non-taxable income include:

• Child support
• Cash gifts of up to $18,000 (in 2024)
• Foreign earned income of up to $126,500 per person (in 2024)
• Academic scholarships used to pay for qualifying educational expenses

Payment Plans

If your tax bill is too large to pay in full, you can arrange an installment plan with the IRS. A short-term payment plan gives you up to 180 days to pay your bill; a long-term plan gives you up to 72 months. You'll pay penalties and interest until your tax bill is paid off completely, but the IRS won't take collections actions (such as seizing property) while you have an installment plan in place.

Payment Deferrals

The IRS may agree to delay collection activities on your tax debt if you're undergoing a temporary financial hardship, such as a job loss. If your account is deemed currently not collectible (CNC), payment requirements are temporarily halted until your financial condition improves. However, the IRS may keep a tax lien in place, and penalties and interest may continue to accrue.

Learn more: Tax Liens Are No Longer a Part of Credit Reports

Offers in Compromise

An offer in compromise lets you settle your IRS debt for less than the full amount you owe. The IRS evaluates each request individually, taking into account your income, expenses, assets and ability to pay. If the IRS determines that an offer represents the maximum amount they can reasonably expect you to pay, they may grant partial forgiveness and accept it.

Formerly known as Fresh Start, the offer in compromise program gives taxpayers in financial hardship a way to work directly with the IRS to reduce their tax debt. Although there's never a guarantee that the IRS will agree to it, and the application process can be complex, you don't need to hire a service or work with a tax attorney to request an offer in compromise. Learn more in this IRS FAQ.

Tip: Not everyone qualifies for IRS partial debt forgiveness. Use the IRS' interactive Offer in Compromise Pre-Qualifier Tool to help determine whether you may be eligible for this form of tax relief.

Penalty Relief

The IRS may agree to waive penalties if you've made a good faith effort to comply with tax laws but were unable to because of circumstances beyond your control. As an example, your tax return and payment might be delayed because you suffered a natural disaster. If you have a history of good tax compliance (with no penalties for at least three years), you may be eligible for an administrative waiver called a first-time abate.

What Are Tax Relief Services?

Tax relief services can help you navigate IRS debt relief programs and negotiate on your behalf. If you have significant tax debt and feel confused about which IRS program (if any) might apply to you, getting professional advice could be a next step. Here are a few alternatives.

• Tax attorneys: A tax attorney can prepare your tax return and help you develop strategies to minimize the amount of tax you pay. They can also represent you in disputes with the IRS and negotiations over debt relief.
• Tax settlement companies: These companies specialize in navigating IRS debt relief policies and negotiating payment plans or offers in compromise on your behalf. A qualified tax relief service can provide expertise and do the legwork of dealing with the IRS. On the downside, they charge fees that cut into (or even surpass) your tax savings. Some tax settlement services may overcharge and underdeliver, as explained below.

Should You Hire a Tax Settlement Service?

Not all tax settlement services are legitimate. In fact, the IRS lists offer in compromise "mills," or services that falsely promise to settle IRS debt at a discount, among its "dirty dozen" top IRS scams. If you're considering a tax settlement service, be wary of the following red flags:

• High upfront fees
• No refunds or waived fees for services you don't receive
• Costly monthly maintenance fees
• High-pressure sales tactics
• Promises to settle debt for "pennies on the dollar"

No company can guarantee settlement results. Whether you work with a tax settlement company or not, the IRS evaluates offers in compromise on a case-by-case basis. Before you sign up with a tax settlement service, make sure the costs (which may be in the thousands of dollars) add up. You may be better off working directly with the IRS and saving yourself the money.

Separately, beware of scammers who pose as IRS agents looking to collect payment by phone, text or social media. The IRS sends first notice of an outstanding balance via U.S. mail; they don't cold call or reach out on social media.

Alternative Ways to Pay Your Taxes

If you're struggling to pay your taxes after exhausting your tax relief options, you can consider other alternatives. Here are a few ways to pay an unexpectedly large tax bill without owing the IRS:

• Personal loans: Pay off your IRS debt in fixed installments over time. Interest rates on personal loans are typically lower than for revolving credit card balances.
• Credit cards: Using a credit card can be a convenient way to pay an IRS balance. However, be wary of high interest rates and an increase in your credit utilization. If possible, you could consider a 0% intro APR credit card, that allows you to pay off the balance over a period of up to 21 months without interest. Just make sure to pay your debt by the end of the introductory period to avoid interest.
• Home equity: Using your home equity as collateral may help you get a home equity loan or line of credit at a lower interest rate. Just be careful to ensure you're able to repay the loan, as you could lose your house if you miss too many payments.

The Bottom Line

Chances are, you're already using IRS tax relief measures to rein in your tax bill. If you owe the IRS more than you can reasonably pay in full, debt relief programs may help—whether or not you enlist the help of a tax relief service to get you started.

One additional bit of good news if you're paying an IRS debt over time: IRS tax liens don't show up on your credit reports and don't have an impact on your credit scores. You can check your Experian credit report for free online to see how your credit is faring as you pay off your tax debt and (hopefully) get a bit of relief.