Background

Self-employed people face irregular income, shifting expenses, and unique withholding responsibilities. That combination makes tax shortfalls common. Over 15 years advising clients, I’ve seen timely use of the IRS options below stop levies and preserve a business’s cash flow. The IRS describes collection options for business taxes and self-employed individuals on its site (see IRS Collection Options for Business Taxes and the Self-Employed Individuals page).

How these options work (quick overview)

  • Installment agreements: An arrangement to pay a tax debt over time. The IRS offers several plan types; some are streamlined and easier to get, others require financial disclosure.
  • Offer in Compromise (OIC): A negotiated settlement that resolves the debt for less than the full amount when you can’t pay in full and the offer is reasonable compared with the IRS’s calculation of your future ability to pay.
  • Currently Not Collectible (CNC): A temporary hardship status that pauses enforced collection (levies and garnishments) when your expenses exceed income. Interest and penalties usually keep accruing.
  • Appeals and Collection Due Process (CDP): Formal review options to dispute a liability or to request a hearing before certain collection actions move forward.

Eligibility and common documentation

All options require proof of identity and documentation of income, expenses, and assets. For partial-payment plans and OICs you’ll typically compile a financial statement (Form 433‑A/B or equivalent). See our guide to preparing a financial statement (Form 433‑A/B) for collections for practical tips.

Who is affected

Freelancers, independent contractors, sole proprietors, and small-business owners who report income on Schedule C or similar forms. Payroll tax liabilities, trust fund taxes, and some penalties have special rules—talk to a tax pro before assuming any option applies.

Step-by-step actions when you receive a collection notice

  1. Read the notice. Identify the tax year, amount, and action (levy, lien, final notice).
  2. Confirm the debt is correct. Request an account transcript from the IRS or consult your tax records.
  3. Respond quickly. Most IRS notices include a deadline to act or appeal.
  4. Contact the IRS or your representative to request a hold while you prepare documentation.
  5. Choose the best option: apply for an installment agreement online (see How to Apply for an IRS Installment Agreement Online: A Beginner’s Guide), prepare an OIC if you can’t pay (see When an Offer in Compromise Might Be Better Than an Installment Agreement), or request CNC status if you have no ability to pay now.

Practical examples from practice

  • A self-employed graphic designer with a sudden tax bill avoided a bank loan by opening an installment agreement that spread payments over two years, preserving cash for her business.
  • A seasonal vendor with chronically low off-season income qualified for CNC until revenue returned. I documented household expenses and provided the IRS with monthly cash-flow statements.

What to expect from each option

  • Installment agreements: Keep filing and paying current year taxes and make regular payments. Missing payments can terminate the agreement and restart collection.
  • Offers in Compromise: Acceptance rates are low; you must fully disclose finances and typically make an initial payment while the IRS evaluates the offer.
  • Currently Not Collectible: Collections pause, but interest and penalties usually continue; the IRS can revisit this status if your situation improves.
  • Appeals/CDP: Filing a timely appeal may stay certain collection actions; use it to challenge liability or ask for a more favorable resolution.

Common mistakes to avoid

  • Ignoring notices. Silence accelerates collection actions (levies, bank garnishments, and liens).
  • Rushing into the wrong option without calculating total cost (for example, picking a plan with high fees or ignoring future estimated tax needs).
  • Failing to keep good bookkeeping—poor records weaken OICs and lead to denied payment plans.

Professional tips and strategies

  • Keep current-year estimated taxes up to date to avoid repeat problems.
  • Prepare a realistic monthly budget and keep supporting documentation (bank statements, invoices, receipts).
  • Consider appointing a licensed representative (CPA, enrolled agent, or attorney) so communications with the IRS are handled professionally. See our notes on preparing Form 433‑A/B for collections.
  • If you get a levy notice, act immediately—the timelines for stopping levies are short.

FAQs (short answers)

  • Will an installment agreement affect my credit? Tax liens can affect credit; an installment agreement alone doesn’t directly change your credit score, but unpaid tax liens or levies can complicate borrowing.
  • How long does CNC last? It is temporary and reviewed periodically; there’s no fixed maximum.
  • Can I file an OIC for payroll taxes? Some payroll-related liabilities follow different rules; consult a tax professional.

Key resources

Internal guides (FinHelp)

Professional disclaimer

This article is educational and does not replace personalized tax advice. Tax law and IRS procedures change; consult a qualified tax professional or the IRS for advice tailored to your situation.