IRS payment plans allow you to make monthly payments on your tax liability. 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.
You may save money in the long run by paying your taxes on time. By paying your taxes in full, you can avoid the following consequences:
It may be a good idea to borrow money or liquidate assets to pay off your taxes. You’ll have to compare the costs of these options to the amount of penalties and interest you’ll face on your tax liability.
You should consider applying for an IRS payment plan in the following situations:
IRS payment plans are simple—you make monthly payments to pay off your taxes 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.
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:
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:
If you pay your taxes 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.
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 amount is paid off.
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The IRS guarantees that it will accept installment agreement requests for taxpayers that meet specific criteria:
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.
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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:
The IRS may ask you to liquidate assets if they have value and are liquid to apply those funds to your outstanding taxes before accepting your installment agreement request.
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The IRS grants Partial Payment Installment Agreements (PPIA) in the following circumstances:
In these cases, the IRS may accept an installment agreement that only pays off a part of your tax liability. 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.
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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.
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.
You can update your payment plan online in some circumstances. For non-direct debit payment plans, you can make the following changes:
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.
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.