How To Set up a Payment Plan With the IRS
Not everyone has the cash on hand to pay their tax bill when it's due on April 15. The IRS is aware of this and will let you request a payment plan to pay your tax bill in monthly installments.
While the IRS will still charge you for penalties and interest, an installment agreement often stops the agency from taking collection actions. Since the penalties and interest will increase the amounts you will end up paying the government, if you have the resources, installment plans are only recommended for taxpayers who have no other payment option.
Types of IRS Payment Plans
The IRS offers individual taxpayers different types of payment plans, depending on the amount they owe and how quickly they can pay their tax bill.
Guaranteed Installment Agreement
If you owe less than $10,000, the IRS will let you pay what you owe over three years under a guaranteed installment agreement. The IRS is required to accept your request for a guaranteed installment agreement if you meet the following requirements:
- Owe $10,000 or less, not including penalties and interest
- Can't pay your tax bill by the due date
- Have filed income tax returns and paid the balance due for the previous five years
- Agree to pay your full tax liability within three years
- Agree to file all tax returns and pay any tax due while the agreement is in effect
- Have not entered into an installment agreement with the IRS during the five previous tax years
Individual Payment Plans
The IRS offers two types of individual payment plans: short-term and long-term.
- Short-term payment plans are for taxpayers who owe less than $100,000 and require full payment in 180 days, but don't require setup fees.
- Long-term payment plans are also called streamlined installment agreements and allow for monthly payments over 72 months (six years). It is available to taxpayers who owe up to $50,000 and automatic payments by direct debit are required for balances of $25,000 or more.
Installment Agreements for Over $50,000
Taxpayers who owe the government more than $50,000 will face additional scrutiny from the IRS. They will be subject to a thorough review by the agency and are often required to provide a full financial statement. If you are trying to work out an installment agreement with the government and owe more than $50,000, it's recommended that you work with a local tax attorney to help walk you through the process and submit the required paperwork.
Partial Payment Installment Agreement
If you can't pay the tax you owe during the 10 years the IRS has to collect on a debt, a partial payment installment agreement will let you settle your tax debt for less than you owe. If you are approved, you are allowed to make monthly payments until the period the IRS has to collect the debt has expired. At that point, the IRS will forgive any unpaid tax debt. However, the IRS has strict requirements that must be met before accepting partial payment.
In most cases, you must owe at least $10,000 to qualify. In addition, the IRS often requires that you meet the following criteria:
- Show that you will be unable to pay their tax debt before the limitations period for the IRS to collect has expired
- Do not own any property or assets that you could sell to meet your tax obligations
- Be unable to take out a loan to cover the amount you owe
- Have filed all of your required tax returns
- Not be in bankruptcy
Requesting a Payment Plan
There are several ways to request a payment plan from the IRS. The traditional way to request a payment plan is by filing Form 9465, Installment Agreement Request. The form is attached to the front of your federal income tax return, but if you request a plan after receiving a notice from the IRS, you can mail the form to the address listed for your state in the instructions.
The IRS offers some taxpayers other options for filing online or by phone if they owe $50,000 or less and believe they otherwise qualify for the plan. If they qualify, they may be able to avoid filing Form 9465.
Short-Term Payment Plans
If you can pay the full amount you owe within 180 days, you can call the IRS at 800-829-1040 and ask to set up an installment agreement. You can also apply online at IRS.gov/OPA.
Long-Term Payment and Other Plans
If you owe $50,000 or less, you can apply online at IRS.gov/OPA. If you establish a plan online, the set-up fees will be lower than if you file using Form 9465.
How Much Does the IRS Charge?
Unless you are setting up a short-term payment plan, the IRS charges a user fee for setting up a payment plan. The IRS will charge a reduced fee if you apply online and use the direct debit payment method.
- $31 for online application and direct debit
- $107 for applications not submitted online but using direct debit
- $130 for online applications with payment by money order, credit card, or debit card
- $225 for applications not submitted online and payments by money order, credit card, or debit card
Low-income taxpayers can ask the IRS to reduce the user fee, waive the fee, or request reimbursement after paying it.
Even though you have entered into a payment plan with the IRS, you will still be expected to pay interest on your unpaid taxes and penalties. The interest rate charged by the IRS can vary from quarter to quarter and is compounded daily.
Can I Reduce My Payments?
If you can no longer make payments on your IRS installment agreement, you should call the agency immediately at 800-829-1040 to see if it will reduce your monthly payments based on your financial situation. However, the IRS may ask you to provide proof that you are unable to make the full payments before it will agree to lower them.
What if I Stop Paying?
The IRS will consider you to have defaulted on your installment agreement if you should stop making payments. In most cases, simply missing one payment will send a taxpayer into default. However, the IRS will give you an opportunity to cure your default.
When the IRS discovers you have missed a payment, it will send you a letter notifying you that the agency plans to end your installment agreement. If you don't contact the agency at the number listed on the notice within 30 days of receiving it, the IRS may terminate the agreement.
In some situations, the IRS will automatically reinstate your installment agreement. You may need to provide the IRS with additional financial information if you don't qualify for automatic reinstatement.
Failure to get back into good standing with the IRS within 90 days will result in the agency starting the collection process. If you owe more than $10,000, the IRS may issue you a notice of federal tax lien. The IRS may also move to collect funds from your employer through wage garnishment, checking accounts, savings accounts, or investment accounts.
Still Have Questions? A Lawyer Can Help
If you owe the IRS a lot of money that you can't pay, setting up an installment agreement to pay off your tax debt through monthly payments can be intimidating. It doesn't help that the IRS may seek larger payments than you can afford. A local tax lawyer can help you assess your financial situation and establish a realistic repayment scenario with the IRS.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.