IRS Tax Payment Plan Complete Guide

IRS Payment Plans

IRS payment plans allow you to make monthly payments on your tax debt. If you can’t pay your taxes in full, your best option may be to apply for an IRS payment plan. You can avoid IRS collection actions—such as wage or bank account levies—by following the terms of your installment agreement.

When You Should Consider an IRS Payment Plan

You may save money in the long run by paying your tax debt on time. By paying your taxes in full, you can avoid the following consequences:

  • Late payment penalties
  • The interest that accrues every month
  • The IRS may file a federal tax lien against your property
  • The IRS may seize your assets or wages

It may be a good idea to borrow money or liquidate assets to pay off your tax debt. You’ll have to compare the costs of these options to the amount of penalties and interest you’ll face on your tax debt.

You should consider applying for an IRS payment plan in the following situations:

  • You don’t have access to credit
  • The cost of getting a loan is higher than the penalties and interest the IRS will charge
  • You don’t have any assets to liquidate
  • You aren’t eligible for an Offer in Compromise or another tax debt settlement

What Is an IRS Payment Plan?

IRS payment plans are simple—you make monthly payments to pay off your tax debt over an extended period. The IRS won’t seize your assets as long as you continue to make payments on time and keep up with your current tax obligations.

The hard part can be coming to an agreement that fits your budget and satisfies the IRS. You generally have to pay off your full balance over time (unless you are eligible for a partial payment installment agreement). Penalties and interest will keep accruing while you make payments, and you’ll have to pay those amounts as well.

What Payment Plan Options are Available and What Are the Fees?

There are several different payment IRS plan options available. Some require you pay a setup fee of up to $225, while others can be set up at no cost. Low-income taxpayers may be able to have these fees waived.

The following factors should be used to determine the type of IRS payment plan you choose:

  • How much you owe in back taxes
  • Which payment method you use (direct debit, debit or credit card, check, or money order)
  • The length of your repayment period
  • Your Collections Statute Expiration Date (CSED)
  • Other details about your financial situation

Pay Now

If you can borrow money at a lower cost than the IRS interest and penalty rate, you could save money by paying the IRS in full now. You should consider alternative methods of getting the money to pay your back taxes, including the following:

  • Borrow from family or friends
  • Sell assets
  • Get a home equity loan
  • Borrow on credit

If you pay your tax debt in full, you can also avoid installment agreement setup fees, the filing of a federal tax lien, and the risk of a payment plan default or termination. However, many taxpayers are unable to get access to loans with low-interest rates, so an IRS payment plan may be their best option.

Short-term Payment Plan (120 Days or Less)

If you just need a little extra time to get the money to pay your taxes, you can apply for a short-term payment plan. You can apply for this plan online if you owe less than $100,000 in combined taxes, penalties, and interest.

There is no setup fee when you agree to pay the full amount within 120 days, but penalties and interest will be added to your balance until the tax debt is paid off.

Guaranteed Installment Agreement

The IRS guarantees that it will accept installment agreement requests for taxpayers that meet specific criteria:

  • You owe $10,000 or less in taxes (not including penalties or interest).
  • Your agreement provides for full payment within three years or by the CSED, whichever comes sooner.
  • You have been in full tax compliance for the past five years. This also applies to your spouse if you file jointly.
  • You aren’t in bankruptcy, and you have not had an IRS payment plan during the past five years.

Setup fees range from $31 for online applications with direct debit installment payments to $225 for applications by phone, mail or in-person with non-direct debit payments. Low-income taxpayers may be able to have these fees waived or reimbursed.

Verified Financial Installment Agreement

Some taxpayers need to verify their financial situation when applying for an IRS installment agreement. You will need to complete Form 433-F to disclose your financial information and submit it with your installment agreement request on Form 9465.

You may need to verify your financials in the following circumstances:

  • You owe the IRS over $100,000
  • You owe over $50,000 and aren’t paying by direct debit or payroll deduction
  • Your business owes the IRS over $25,000

The IRS may ask you to liquidate assets if they have value and are liquid to apply those funds to your outstanding tax debt before accepting your installment agreement request.

Partial Payment Installment Agreement

The IRS grants Partial Payment Installment Agreements (PPIA) in the following circumstances:

  • The taxpayer has some ability to pay (so they may not be eligible for an Offer in Compromise), and
  • Full payment cannot be achieved by the CSED.

In these cases, the IRS may accept an installment agreement that only pays off a part of your tax debt. You will need to submit detailed financial information before a PPIA will be accepted.

If you have any assets, the IRS may ask you to liquidate them or borrow against them. If you don’t have equity in the assets, the assets are unmarketable, or liquidation would cause economic hardship, your PPIA may be granted without requiring you to sell or borrow against the assets.

Once you reach your CSED, the IRS can’t collect payments from you. The IRS may ask you to extend the CSED in exchange for accepting your PPIA. Consult a tax professional if you need help negotiating a PPIA.

When Can I Apply for a Payment Plan Online and How?

If you are repaying your full balance within 120 days, you can apply online if you owe $100,000 or less in combined back taxes, interest, and penalties.

If your repayment period is longer than 120 days, you can only apply online if you owe $50,000 or less in combined back taxes, interest, and penalties. You must also file all delinquent tax returns.

If a business owes $25,000 or less and has all tax returns filed, they can apply online. Use the IRS Online Payment Plan Application to submit your request. Fees may apply for some types of payment plans.

How Can I Check My Payment Plan Balance?

Access your Tax Account Information on the IRS website to find out how much you owe. You can also request your tax transcripts online or by mail.

How to Update an Existing Payment Plan Online

You can update your payment plan online in some circumstances. For non-direct debit payment plans, you can make the following changes:

  • Change your monthly payment amount
  • Change your monthly payment due date
  • Convert your agreement to a direct debit agreement
  • Reinstate your plan after a default

The online payment tool may not accept all of your changes, and you may be asked to submit a financial information statement before changes will be accepted.

If you have an existing direct debit agreement, you will need to contact the IRS to make any changes.

What If I Defaulted on My Payment Plan?

Your payment plan can be terminated if you miss a payment or fail to keep up with your current tax obligations, including filing all required tax returns. The IRS may not immediately terminate your payment plan if you miss one payment. Check your tax account and send payment as soon as possible.

You can also reinstate your plan after a default online. The IRS may charge a reinstatement fee.

If the IRS terminates your payment plan, the IRS can take enforced collection actions against you. Contact a tax professional for help appealing a payment plan termination or renegotiating the terms of your payment plan.

IRS Payment Plan Help & Information

 

Payment Plan Help
Do you need help with a Payment Plan? Our partner tax team (IRS Agents, Tax Attorneys, Tax Lawyers, CPAs) can ensure the best tax settlement for your situation. Understand how the service works and request a free consultation.

Delay IRS Collections
If you just need more time to pay and want to delay the IRS collection system you can easily get extensions.

Pay Back Taxes
General guidelines to follow in order to pay back taxes and set up a payment plan with the IRS.

File Back Taxes
Guidelines, steps, and advice to follow when filing your back taxes.

Currently Not Collectible
Prove to the IRS that you do not have the means to pay your back taxes with your current financial standing. Hold of IRS until you can pay or until the statute of limitations expires.

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