The IRS can temporarily delay collection for taxpayers who cannot pay, but penalties and interest keep growing and the agency may still keep their refunds, the IRS says on its page on delaying the collection process. The status is called Currently Not Collectible, and it pauses most collection activity without reducing what is owed.
“If you cannot pay due to financial hardship, we may place your account in Currently Not Collectible (CNC) status,” the IRS says. The agency decides whether a taxpayer qualifies, and it says that “you still owe the full amount of your tax debt. It is not forgiven or cancelled.” The page was last updated July 13, 2026. The IRS describes the status as pausing most collection activity, and a refund offset is one of the steps it says it may still take.
For a taxpayer who cannot pay, the choice comes down to asking for the delay, setting up a payment plan or applying for an offer in compromise, which settles the debt for less. The IRS tells people to call 800-829-1040 or the number on the bill or notice to ask for the delay, and says people for whom the status does not fit may be able to set up a payment plan or apply for an offer in compromise.
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What does the IRS ask for before it pauses collection?
A taxpayer may need to submit Form 433-F, 433-A or 433-B, the IRS says, and the agency may also ask for documents that verify income, monthly living expenses, bank accounts and property or other assets. Those forms collect the financial picture the IRS uses to judge whether the person can pay. The IRS tax payment options page, last reviewed Sept. 25, 2026, frames the test as whether paying “would prevent you from meeting your basic living expenses.”
Hardship has a definition in the agency’s manual. A hardship exists when a taxpayer is unable to pay reasonable basic living expenses, according to section 5.16.1 of the Internal Revenue Manual, which also says a hardship case can be reactivated if there is a change in the taxpayer’s ability to pay.
Individuals call 800-829-1040, the payment options page says, and businesses call 800-829-4933.
Do penalties and interest stop during the delay?
They do not. “Penalties and interest continue to accrue until you pay your balance in full,” the IRS says. Its overview of the collection process puts it the same way, saying interest and late payment penalties up to the maximum allowed by law will continue to accrue, and that being currently not collectible does not mean the debt goes away.
Unpaid balances after the original due date are subject to interest and a monthly late payment penalty, the payment options page says, and it advises paying as much as possible when filing. A delay can therefore make the final number larger. The relief is that most collection activity stops for now, not that the bill stops growing. The IRS may also ask for a Collection Information Statement, the collection overview says.
Can the IRS still keep a refund?
Yes. “We may apply your federal tax refund to your tax debt,” the IRS says. The collection overview adds that future federal tax refunds or state income tax refunds the person is due may be seized and applied to the federal tax liability.
That matters for anyone counting on a spring refund while in CNC status. The refund can go to the old balance instead of the household, and the IRS may also file a Notice of Federal Tax Lien to protect its interest in the person’s property.
What are the other ways to deal with the balance?
The IRS says there is no fixed end date for CNC status, and it may review a taxpayer’s finances later and resume collection if the ability to pay improves. The payment options page describes the alternatives, and each has its own rules.
A short-term plan gives individuals up to 180 days to pay in full, with no fee, and the IRS says interest and any applicable penalties still accrue until the liability is paid. Monthly installment agreements are available for balances that cannot be paid within 180 days. A simple payment plan covers individuals whose assessed balance of tax, penalties and interest is $50,000 or less, and a guaranteed installment agreement applies when the tax owed is $10,000 or less, excluding interest and penalties, with full payment due within three years.
A partial payment installment agreement is for people who cannot pay in full by the collection statute expiration date, generally 10 years, and the IRS reviews those every two years to see whether finances have changed. An offer in compromise “resolves your tax liability by payment of an agreed upon reduced amount,” the IRS says, and it requires filed returns, a bill for at least one included debt and current-year estimated payments. An open bankruptcy makes a taxpayer ineligible.
Holding an IRS collection letter you cannot pay?
A pause in collection still leaves the full balance, growing penalties and interest, and a refund that can be applied to the debt.
A collection delay is a pause, and the paperwork after it, from notices to a refund applied to the old balance, is where this kit helps. The IRS Refund Recovery Kit is a 20-page guide that includes a notice decoder and a refund status tracker spreadsheet, and Part 4 is a notice decoder for why a refund stalls.
Get the notice decoder and refund tracker for IRS collection letters →
This article was produced with AI assistance and edited for accuracy against the sources linked above.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
