Tax Relief Comparison

Installment Agreement vs Currently Not Collectible

Can you afford monthly payments, or would even small payments cause hardship? The answer determines which option is right for you.

Find Your Best Option

Quick Comparison

Factor	Installment Agreement	Currently Not Collectible
What it does	Monthly payments toward full balance	Pauses all collection activity
Best for	Those who can afford some payment	Those who can't afford any payment
Monthly payment	Yes, based on ability to pay	No payments required
Setup fee	$31-$225	No fee
Processing time	Same day to a few weeks	Weeks to a few months
Interest accrues?	Yes (penalty rate reduced)	Yes (full penalty rate)
Resolves debt?	Yes, when paid in full	No, debt remains
IRS review	If you default or request changes	Periodic financial reviews

Installment Agreement: Pay What You Can Afford

An installment agreement is a monthly payment plan that lets you pay off your tax debt over time. The IRS offers several types based on how much you owe and your ability to pay.

Types of Installment Agreements

Guaranteed IA - Owe ≤$10,000, can pay in 3 years. IRS must approve.
Streamlined IA - Owe ≤$50,000, can pay in 6 years. No financial disclosure required.
Non-Streamlined IA - Owe >$50,000 or need >6 years. Full financial analysis required.
Partial Payment IA - Pay what you can afford, even if it won't cover the full balance before the statute expires.

Installment Agreement Advantages

Stops collection actions (levies, garnishments)
Predictable monthly payments
Failure-to-pay penalty reduced from 0.5% to 0.25%
Can often set up online or same-day
Resolves debt when fully paid

Installment Agreement Disadvantages

Must make consistent monthly payments
Interest continues to accrue
Tax lien may remain until paid
Defaulting restarts aggressive collection
Total paid is more than original debt (due to interest)

Currently Not Collectible: Zero Payment Required

Currently Not Collectible (CNC) status is for taxpayers in genuine financial hardship who cannot afford any payment without sacrificing basic necessities.

How CNC Status Works

You provide financial documentation showing that your monthly income minus IRS-allowed expenses equals zero or less. The IRS then:

Marks your account as uncollectible
Stops all active collection efforts
Leaves your debt in place but doesn't pursue it
Reviews your finances periodically

CNC Advantages

No payments required at all
Immediate relief from collection actions
No setup fee
10-year collection statute continues running
Time to recover financially

CNC Disadvantages

Debt is not eliminated or reduced
Full interest and penalties continue
IRS may file a tax lien
Status can be removed if finances improve
No resolution - just a pause

The Key Question: Can You Afford Payments?

The IRS uses Collection Financial Standards to determine what you can afford. They allow certain amounts for:

Housing and utilities (based on county)
Food, clothing, and personal care
Transportation (ownership + operating costs)
Health insurance and out-of-pocket medical
Court-ordered payments (child support, etc.)

The Math

Your Monthly Income - IRS Allowed Expenses = Disposable Income

If disposable income is positive → Installment Agreement territory
If disposable income is zero or negative → CNC territory

Be aware: The IRS's "allowed" expenses may be less than what you actually spend. They use national and local standards, not your actual spending.

Which Option Is Right for You?

Consider an Installment Agreement if:

You have disposable income after basic expenses
You have steady, reliable income
You want to fully resolve your debt
You can pay the balance within 6 years
You want reduced failure-to-pay penalties
You prefer a structured repayment plan
Your financial situation is stable

Consider Currently Not Collectible if:

Any payment would jeopardize basic needs
You're unemployed or underemployed
You're facing a medical or financial crisis
Your income barely covers necessities
You're on fixed income (disability, Social Security)
You need time to recover financially
The collection statute is close to expiring

Real-World Examples

Example: IA is the Right Choice

Situation: David owes $28,000. He earns $5,500/month. After IRS-allowed expenses, he has $450 disposable income.

Analysis: He can afford payments. A streamlined IA at $400-450/month resolves his debt in about 6 years.

Result: Streamlined IA set up online. Collection actions stopped immediately.

Example: CNC is the Right Choice

Situation: Maria owes $35,000. She was laid off and now receives $2,100/month in unemployment. Her basic expenses total $2,300.

Analysis: She has negative disposable income. Any payment would require sacrificing food or housing.

Result: CNC status granted. Collections paused while she searches for work.

The Partial Payment Installment Agreement: A Middle Ground

There's actually a hybrid option that combines elements of both: the Partial Payment Installment Agreement (PPIA).

How PPIA Works

You pay what you can afford each month
Payments may not cover the full balance before the 10-year statute expires
When the statute expires, remaining debt is forgiven

When PPIA Makes Sense

If you have some disposable income but not enough to pay your full debt in 6-10 years, a PPIA lets you make affordable payments while letting the clock run on the rest.

Example: You owe $100,000 with 7 years left on the statute. You can afford $500/month. That's $42,000 over 7 years. Under a PPIA, you pay $42,000 and the remaining ~$58,000 (plus accumulated interest) expires.

Moving Between Options

Your tax relief status isn't permanent. Your situation can change, and so can your solution.

From CNC to Installment Agreement

If you're in CNC and get a new job or your income improves, the IRS may remove your CNC status. At that point, you'd negotiate an installment agreement based on your new financial situation.

From Installment Agreement to CNC

If you're making payments but lose your job or face a medical crisis, you can request CNC status. The IRS may pause your installment agreement and place you in CNC until you recover.

Pro Tip

Be proactive. If your situation changes significantly, contact the IRS (or your tax representative) before you default on payments. It's easier to modify your arrangement than to recover from a default.

Frequently Asked Questions

What if I can only afford a very small payment?

If your disposable income is minimal (say, $50-100), you might still qualify for CNC rather than an installment agreement. The IRS typically wants payments that make meaningful progress on the debt. Very small payments may not be worth the administrative cost to them.

Can I switch from an installment agreement to CNC if I lose my job?

Yes. Contact the IRS immediately and provide documentation of your changed circumstances. They can place your account in CNC status while you're experiencing hardship, then reassess when your situation improves.

Will the IRS accept whatever payment amount I offer?

Not necessarily. For streamlined agreements, the minimum is your balance divided by 72 months. For non-streamlined agreements, the IRS calculates your payment based on their analysis of your finances. You can negotiate, but they have guidelines.

Does CNC hurt my credit more than an installment agreement?

Neither directly reports to credit bureaus. However, the IRS may file a tax lien in either situation, which can affect your credit. The lien is more likely with CNC since the debt remains in full without reduction.

What about an Offer in Compromise instead?

An OIC is a third option that settles your debt for less than you owe. It's best for people who have some ability to pay but can't afford the full amount. If you qualify for CNC or can only afford minimal installment payments, you might also qualify for an OIC.

Not Sure What You Can Afford?

Your financial situation determines which option is best. Take our free assessment and we'll help you understand your disposable income and which IRS program fits your circumstances.

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