Tax season is over…but your payment obligations may not be if you have a tax debt that you couldn’t pay by the April 15, 2025 deadline. If this is the case, take a deep breath and consider whether one or more of these IRS taxpayer relief options may help you reduce the penalties and potential fines in the short-term while also allowing your freelance business to maintain financial stability over the long-term.

Most individual taxpayers, including freelancers, can qualify for an IRS payment plan. Setting up an online payment agreement is the easiest method, and it can be done quickly at IRS.gov. Here are some of the options to consider if you have outstanding freelance tax amounts that you owe:

Short-Term Payment Plans

• Available to taxpayers with a balance under $100,000 in combined taxes, penalties, and interest.
• Allows payments to be made over 180 days.

Long-Term Payment Plans

• Available for balances under $50,000.
• Monthly payments can be made for up to 10 years via direct debit to prevent missed payments and penalties.

Once the online application is completed, taxpayers receive immediate approval—no need to call or visit an IRS office.

Alternative Payment Solutions

If you do not qualify for an online payment plan, additional options exist including:

• An Offer in Compromise – This allows you to potentially settle a tax debt for less than the total owed. You can check your eligibility using the Offer in Compromise Pre-Qualifier, however it is highly encouraged to work with a tax professional to handle IRS Offers in Compromise. 
• Temporary Delay of Collection – If the IRS determines that a taxpayer cannot currently pay, it may delay collection until financial circumstances improve. Penalties and interest will continue to accrue during this time. See the information below on penalties and fines as well as potential relief for these from the IRS.

Penalty Relief for Eligible Freelancers

You qualify for penalty relief if you were unable to meet your tax requirements due to circumstances beyond your control, and if you made an effort to comply with tax laws but faced challenges beyond your control. 

The IRS offers several types of relief, including:

First-Time Penalty Abatement. The First-Time Penalty Abatement relief is designed for business owners with a clean tax compliance history, meaning no prior penalties in the past three years. If eligible, you can request this relief to have penalties waived, easing your financial burden. 

Reasonable Cause Relief. Reasonable Cause Relief applies if unforeseen circumstances—such as serious illness, natural disasters, or other hardships—prevented you from meeting tax obligations. To qualify, you must provide documentation supporting your claim. 

Administrative Waivers. Administrative Waivers cover cases where the IRS adjusts penalty policies, such as granting broad relief during periods of economic hardship. Understanding these options can help freelance business owners reduce or eliminate penalties, making it easier to manage their tax responsibilities and keep their business on track. 

Additionally, the IRS has provided automatic penalty relief for certain taxpayers with assessed taxes under $100,000 for tax years 2020 and 2021. More details on eligibility and application processes are available on the IRS website.

If you have  received a penalty notice, contact a qualified tax professional to assist you. 

What to Do if You Didn’t File Your Freelance Tax Return

It is very important to file your tax return on time (or request a legal 6-month extension), even if you can't pay the full amount owed otherwise you may be subject to these penalties:

• Failure to file penalty: 5% of unpaid taxes per month (or part of a month), up to 25%
• Failure to pay penalty: Only 0.5% of unpaid taxes per month, up to 25%

If your return is over 60 days late (without filing a legitimate extension), the minimum penalty jumps to the smaller of $485 (for 2024) or 100% of the tax owed.

Avoid These Common Mistakes When Taking Care of Freelance Tax Debt

• Don't use credit cards with high interest rates—IRS interest rates are typically lower
• Don't ignore IRS notices—they won’t disappear, and ignoring them can lead to liens or garnishments
• Don't tap retirement accounts unless absolutely necessary—early withdrawals often trigger additional penalties

Plan Ahead to Prevent Future Tax Surprises

Planning ahead can help you avoid tax penalties and keep your freelance business financially stable. Consider these proactive steps:

• Increase your quarterly estimated tax payments to prevent underpayment and unexpected tax bills.
• Set up a dedicated tax savings account to ensure you have funds set aside for tax obligations.
• Meet with a tax professional to identify potential deductions and credits that could lower your tax burden.

By taking these steps, you can maintain financial stability and focus on growing your business with confidence.

Get Professional Help and Be Proactive About Tax Debt

The IRS works with millions of taxpayers (Including thousands of freelancers!) who can’t pay in full. They have processes in place to assist you, but the  key is to be proactive, communicate with them, and make a good-faith effort to fulfill your tax obligations. 

However, it’s almost impossible to take care of tax debts alone. Consider consulting a tax professional who specializes in freelance taxes. They can help you navigate tIRS penalties and payment options as well as developing a strategy to get back on track financially so your tax problems become a thing of the past!