Can I Make Payments on My Taxes?
Preparing and filing your federal income tax returns can be stressful, and if you don't have the money to pay the tax you owe, it can be overwhelming. It may be tempting to simply not file your taxes or to file without paying. But the Internal Revenue Service allows you to set up a monthly plan to pay off your tax bill under an installment agreement.
While a monthly payment plan is an option for paying your taxes if you don't have the money available, it is always preferable to pay the balance due. That's because the IRS assesses a late payment penalty and interest on your unpaid tax bill each month. The penalty is reduced while making payments, but you will still pay more than if you paid the full amount on April 15.
Payment Plans Can Stop IRS Collections
If the IRS notifies you that you have an unpaid tax bill, establishing a payment plan with the agency will usually stop collection activities as long as you abide by the agreement. While the installment plan will stop the IRS from garnishing your income or taking other collection actions, the agency may still place a federal tax lien on your property to ensure you don't try to sell it before your bill is settled.
IRS Payment Plan Options
Like most other types of payment plans, IRS payment plans are agreements with the agency to pay your tax bill over a period of time. The IRS offers short-term and long-term payment options, depending on how much you owe and other factors. Remember, your payment amount must also provide for the payment of any penalties and interest that have accrued on your unpaid tax bill.
While the IRS generally encourages taxpayers to file for payment plans online at IRS.gov, you can still file by phone, in person, or by mail using Form 9465, Installment Agreement Request.
Short-Term Payment Plans
Short-term payment plans are available to taxpayers who owe $100,000 or less and agree to pay their tax bill in 180 days or less (roughly six months). One benefit of choosing a short-term payment plan over a long-term plan is that you won't be charged setup fees. The IRS offers three payment methods under a short-term plan:
- Direct pay from a checking or savings account
- Electronic payments made with an online account, by phone, or using the Electronic Federal Tax Payment System (EFTPS)
- Check, debit card, credit card, or money order (there will be additional charges for card payments)
Long-Term Payment Plans
If you can't pay off your tax liability in 180 days and owe $50,000 or less, you may request a long-term payment plan from the IRS. Under a long-term plan, you have up to 72 months to pay your tax bill. However, in addition to the additional interest and late payment penalties that will accrue over that longer time period, there is also a setup fee for a long-term plan. Long-term plans offer two payment options:
- Direct Debit: Sometimes called direct debit installment agreements, they provide for monthly direct payments from your checking account. If you owe more than $25,000, you must make payments by direct debit. If you apply for a long-term direct debit payment plan online, you must pay a $31 setup fee. That fee increases to $107 if you apply by phone, by mail, or in person.
- Nonautomatic Payments: If you owe $25,000 or less and don't want to set up automatic payments, you can set up a payment plan that requires you to pay the IRS each month. These payments can be made by direct pay, EFTPS, check, credit card, debit card, or money order. There will be additional fees if you pay by card. The setup cost for nonautomatic payments is $130 if you apply online and $225 if you apply by phone, mail, or in person.
Setup fees may be reduced or waived for low-income taxpayers entering long-term payment plans.
What if I Can't Afford an Installment Agreement?
In some circumstances, the IRS will allow taxpayers who can't pay their tax bill to pay a reduced amount or forgive their entire tax bill. However, the IRS will require that you prove that you can't afford an installment agreement, can't raise the money by selling your assets, or that there is a good reason for forgiving your tax bill.
An IRS OIC allows you to settle your tax debt for less than you currently owe. The IRS will accept an OIC if you can show that you can't pay your full tax bill or that doing so would create a financial hardship. Essentially, you must show that your offer is the most the IRS could hope to collect in a reasonable period of time.
The forms for submitting an OIC, plus step-by-step instructions, are included in Form 656-B, Offer in Compromise Booklet.
If the IRS agrees that you can't pay any of your tax debt and continue to pay necessary living expenses, it may report your account as CNC and delay any collection process. While this will stop the IRS from taking steps to collect your tax debt, this does not eliminate your tax debt. Additionally, penalties and interest will continue to accrue while your account is CNC.
During the period your account is CNC, the IRS will review your financial situation each tax year and require you to pay your tax bill if it has improved. The federal collection statute gives the IRS 10 years to collect a tax debt, so the debt is often forgiven if the account is still CNC after 10 years.
To request CNC status, call the IRS at its general phone number: 800-829-1040. The IRS will generally ask that you complete Form 433-F, Collection Information Statement, and provide documentation, including bank account information, as part of the application process.
Still Have Questions? Talk to a Lawyer
If you have a tax bill you don't believe you can reasonably make the full payment by the due date, a local tax attorney can help you set up a payment plan you can afford. A tax lawyer can also assess your financial situation and determine whether you are a good candidate for an OIC that will allow you to settle your tax debt for less than you owe.
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.