Accidentally marked myself tax exempt and now owe IRS $12K I don't have - need help!

The good news is you have options! First, don't panic - the IRS works with people in your situation all the time. And don't sell your car yet! You're right that there are payment plans available. The IRS offers both short-term (120 days or less) and long-term payment plans. With your income level and amount owed, you'd likely qualify for a long-term payment plan where you can pay off the debt over several years with relatively low monthly payments. Another option is an Offer in Compromise (OIC) where the IRS agrees to settle your tax debt for less than the full amount. However, these are harder to qualify for - they're typically for people who can prove they'll never be able to pay the full amount. With your income level, you might not qualify unless there are other significant financial hardships you're facing. Be very careful with companies offering to settle your tax debt for "pennies on the dollar." Most legitimate tax resolution companies will help you navigate IRS programs like payment plans or OIC, but they can't do anything magical that you couldn't do yourself with some research.

After dealing with a similar situation last year (though I owed less, about $8K), I found this amazing tool called taxr.ai (https://taxr.ai) that helped me understand my options. It basically analyzed my tax situation and gave me personalized guidance on how to deal with the IRS. The thing I loved about it was that it helped me understand which IRS programs I actually qualified for instead of wasting time on things that wouldn't work for my situation. It walks you through all the rules about payment plans, penalty abatement, and even that Offer in Compromise program the previous commenter mentioned. For me, it ended up recommending a payment plan plus requesting what's called a "first-time penalty abatement" which actually reduced what I owed by almost $1000 because it removed some of the penalties (not the tax itself, but the extra fees).

I was skeptical about taxr.ai at first (like I mentioned in my question above), but I decided to try it out of desperation. Honestly, it was a game-changer. The tool analyzed my specific situation - I owed about $7K to the IRS from a side business I didn't pay quarterly taxes on. I was impressed that it actually explained exactly which penalties I was being charged and showed me that I qualified for the First-Time Penalty Abatement program since I'd had a clean tax record for the past 3 years. It created a letter for me to send to the IRS requesting this abatement, which I would have never known to do. Long story short, the IRS approved my penalty abatement request which knocked almost $900 off my tax bill, and I got set up on a monthly payment plan I can actually afford. The whole process was way less stressful than I expected!

If you need to actually speak with someone at the IRS (which you might, especially if you're pursuing an Offer in Compromise), good luck getting through on the phone. I spent literally DAYS trying to reach a human at the IRS last year. I finally found this service called Claimyr (https://claimyr.com) that got me through to an IRS agent in about 15 minutes when I'd been trying for weeks. You can see how it works here: https://youtu.be/_kiP6q8DX5c It basically holds your place in the IRS phone queue and calls you when an agent picks up. Saved me hours of listening to hold music and getting disconnected. I used it twice - once to set up my payment plan and again when I had a question about my account.

I need to apologize for my skepticism above. After trying to reach the IRS for TWO WEEKS (getting disconnected every time after 1-2 hours on hold), I tried Claimyr out of pure frustration. No joke - I got a call back about 45 minutes later with an actual IRS agent on the line. I was so shocked I almost didn't know what to say at first! The agent helped me set up a payment plan for the $14K I owed from misclassifying some investment income. I had to use it again when there was an issue with my first payment not processing correctly. Second time worked just as well - got through in about an hour when I had previously wasted an entire day trying to call them directly. Definitely saved my sanity during this whole tax nightmare.

Don't forget to look into penalty abatement! If this is your first time having tax issues (sounds like it is), you can request what's called "First-Time Penalty Abatement" which can reduce your total by removing the failure-to-pay penalties. This won't eliminate your tax debt, but it could knock off a significant chunk of what you owe. You'll still need to pay the actual tax amount and interest, but removing penalties helps a lot. Also, make sure you've fixed your W-4 with your employer immediately so you don't keep digging a deeper hole!

Just wanted to add that I went through almost this exact situation last year! I accidentally claimed exempt when I started a new job and ended up owing around $10K. I panicked too. I ended up calling the IRS directly and setting up a payment plan. My monthly payment is $178 for 72 months. They were actually really understanding about the whole thing. The person I spoke with explained that this happens WAY more often than you'd think. Don't waste your money on one of those tax relief companies you see advertising on TV. Most of them charge thousands of dollars to do exactly what you can do yourself for free.