IRS Installment Agreement – Request Types, 9465 & Process
If you can’t pay your taxes right away but have enough assets and/or income to pay overtime, an IRS installment agreement may be the right choice for you.
An installment agreement is one of the most common payment arrangements for people who owe back taxes to the IRS. If you are filing your tax return and you don’t have the full payment, you can even request a payment plan at the same time as you file your return. If you owe less than $100,000, it’s pretty easy to get an installment agreement.
Table of Contents
- Types of IRS Installment Agreements
- How to Apply for an Installment Agreement
- Fees to Set Up Installment Agreements
- After You Apply for an Installment Agreement
- Help to Set Up an Installment Agreement
Installment Agreement Help
The IRS offers different kinds of Installment Agreements. They all allow you to pay your tax amount owed in monthly installments. Here are the most common types of installment agreements. The links provide more details on specific requirements and how to file.
Guaranteed Installment Agreement
Here are the basic requirements you need to meet to get a guaranteed installment agreement.
- Must have less than $10,000 in back taxes. You can combine the taxes from multiple years. The $10,000 only applies to actual tax liability. It does not count interest and penalties. For instance, if you owe $11,000 and just $9,000 is from tax amount owed and the other $2,000 is from interest and fees, you can qualify.
- You and your spouse (if applicable) have filed the last five years of tax returns.
- Don’t currently have an Installment Agreement with the IRS.
- Not in bankruptcy.
- Have not had an Offer In Compromise accepted recently.
- Tax liability can be paid off over the next three years or by the Collection Statute Expiration Date (CSED), whichever comes first.
- You agree to pay and file all tax returns for the duration of the agreement.
- Estimated quarterly payments are up to date if you work for yourself.
- If you’re employed, your employer is withholding enough from your paycheck. If necessary, you have submitted a new W-4 to increase how much your employer withholds.
How to Apply for a Guaranteed Installment Agreement
This guide is an overview of the application process. Follow these steps to set up a guaranteed installment agreement.
- To apply online, use the Online Payment Agreement Application (OPA) on the IRS’s website.
- When applying through the mail, complete Form 9465 (Installment Agreement Request) or Form 433-D (Installment Agreement).
- Calculate your monthly payment by taking the amount you owe and dividing by 30. Even though you have 36 months to pay, this calculation gives you some breathing room for the interest that accrues on the taxes owed. That helps to ensure that you can pay off the whole amount within three years.
- If you can afford to make larger payments, you can offer to do that. Just remember to leave enough money in your budget to cover your routine monthly expenses. You don’t want to overextend yourself and default on the agreement accidentally.
- Pay the setup fee. As of 2017, it’s only $31 if you set up direct debit payments online. The fee is $149 for setting up online without direct debit payments; $107 if you set up direct debit payments with one of the forms above; and $225 if you set up over mail and don’t use direct debit. If you qualify for a low-income reduced fee, it’s only $43 to use the above forms. The IRS will let you know if you are eligible for the reduced fee based on your application. If you need to reinstate a defaulted agreement, there is an $89 fee.
- If applying through the mail, make copies of your forms for your records. Then, send the originals to the IRS address listed on the form.
- Call the IRS if you don’t hear back from them within a month. Also, make your first monthly payment as proposed, even if you haven’t heard back. That makes it look like you’re serious about resolving the tax amount owed.
Tax Liens and Guaranteed Installment Agreements
In most cases, the IRS does not file tax liens for people who owe less than $10,000. However, the agency has the right to file a tax lien even if you only owe a small amount.
A tax lien is a note that appears on your credit report saying the IRS has a right to your assets. A tax lien is similar to how if you owe money on a car, the lender has a lien on your vehicle. Once you have completed the installment agreement, the IRS removes the lien. However, you can request to have the lien removed as soon as you enter into the installment agreement.
Getting Help With Guaranteed Installment Agreements
The IRS responds to your request for an installment agreement within 30 days. If there are any questions or concerns, the agency contacts you directly. To ensure your installment agreement gets accepted, you may want to work with a tax professional. A tax professional can also help with removing tax liens or stopping tax levies.
Streamlined Installment Agreement
Streamlined installment agreements are best for taxpayers who owe less than $50,000. These agreements are called streamlined because the IRS does not require you to submit detailed financial information. However, the IRS may need detailed information if you defaulted on a previous agreement or if you don’t want to set up a direct debit.
As of 2017, the IRS is experimenting with offering streamlined installment agreements to taxpayers who owe up to $100,000. This pilot program runs until September 2018. There are more details below.
Regular Requirements for Streamlined Installment Agreements
These are the requirements the IRS traditionally uses for streamlined agreements. The section below explains the new experimental criteria.
- An individual who owes less than $50,000 in back taxes. That includes penalties and interest.
- Businesses must owe less than $25,000. Out-of-business sole proprietors can owe up to $50,000.
- Filed all required tax returns for the last five years.
- If applicable, your spouse has filed all tax returns for the last five years.
- Currently, are not in an installment agreement with the IRS.
- You are not in the midst of filing bankruptcy.
- If an individual, you can pay off your back taxes within 72 months (six years) or by the Collection Statute Expiration Date (CSED), whichever comes first.
- Trust fund tax payment plans, if a business, they must be paid in full within 24 months.
- Up to date on estimated quarterly tax payments.
- If you are an employee, your boss is withholding enough for your paycheck so that you aren’t likely to owe tax at the end of the year.
New Streamlined Installment Agreement Test Criteria
As of 2017, the IRS is making it easier than ever for taxpayers to get streamlined installment agreements. Under the new criteria, you can apply for an installment agreement if you owe up to $100,000 in back taxes. If you owe between $50,001 and $100,000, you can take up to 84 months (seven years) to make your payments.
In the past, if you owed over $25,000, you had to set up automatic payments to come out of your bank account or paycheck. With the new criteria, the IRS prefers automatic payments, but you don’t have to set them up. However, if you owe over $50,000 and you don’t set up automatic payments, you have to submit detailed financial information using Form 433-F (Collection Information Statement).
In late 2018, the IRS plans to review these new criteria and make a decision on whether or not to make them permanent.
How to Apply for a Streamlined Installment Agreement
Follow these steps if you want to apply for a streamlined installment agreement.
- File any outstanding tax returns from the previous five years.
- Apply online using the Online Payment Agreement Application. Apply through the mail using Form 9465 (Installment Agreement Request). Or, have a tax professional apply for you.
- Determine how much you can pay each month. To estimate your payment, you can divide your total amount due by 72, or you can propose a payment based on your budget.
- Make sure your payment is enough to pay off the total tax amount within 72 or 84 months. If you can’t afford that, consider applying for a partial payment installment agreement (PPIA). A PPIA only requires you to pay off a portion of your back taxes. The IRS only accepts those proposals if you genuinely cannot afford to make larger payments.
- Submit the setup fee for your installment plan. It’s $31 if you apply online and agree to pay with direct debit. It’s $149 if you apply online and don’t agree to direct debit, $107 for direct debit using Form 9465, and $225 if using Form 9465 and not setting up a direct debit. The payment amount if you are under the poverty line is only $43.
- If you need to submit additional financial information (based on the criteria mentioned above), fill out Form 433-F (Collection Information Statement) and submit that with your application.
- When applying through the mail, make copies of Form 9465 before submitting it. Mail your application to the address on the form.
- You don’t have to submit your first month’s payment with your application, but if the IRS has not responded by the date of your first proposed payment, you should send in the payment anyway.
Typically, you will get a response within 30 days or less and a confirmation letter with the payment terms.
If the IRS rejects your installment agreement request, you can appeal using Form 9423 (Collection Appeal Request). The IRS usually does not resume collection activity for another 30 days, and appealing can help you to stall.
Financially Verified Installment Agreement
With a financially verified installment agreement, you make monthly payments on your tax liability but to get the agreement approved, you give the IRS detailed financial information about yourself. The key difference between this agreement and a guaranteed or a streamlined installment agreement is that you verify your financial situation.
Who Should Use Verified Financial Agreements?
Traditionally, the IRS requires taxpayers who owe over $50,000 to verify their financial details to get an installment plan. Additionally, if you owe between $25,001 and $50,000 and you have recently defaulted on an installment plan, you also need to apply for a verified financial agreement.
However, in 2017, the IRS rolled out new criteria on when taxpayers need to verify their financial details. Under the new rules, you only need to verify your financial details if you owe more than $100,000 or if you owe between $50,001 and $100,000 and aren’t willing to set up direct debit payments. The IRS is testing this new arrangement until September 2018. At that time, the agency plans to decide whether or not to make the changes permanent.
How Do You Verify Your Financial Details?
To share financial details with the IRS, you need to fill out Form 433-F (Collection Information Statement). This form is a streamlined version of forms 433-A (Collection Information Statement for Earners and Self-Employed Individuals) and 433-B (Collection Information Statement for Businesses). In some cases, the IRS may request these other forms.
Form 433-F requires detailed information about your financial situation. It requests details about all your assets, income, and liabilities. The IRS looks at this information to determine if you can pay more. If you can avoid sharing this information with the IRS, you may want to do that.
For example, if you owe $60,000 or a similar amount under $100,000, you may want to set up payments to come automatically out of your bank account. That way, you don’t have to verify your financial details. In contrast, imagine that you refuse to set up automatic payments and the IRS requires you to submit 433-F. After reviewing that form, the IRS decides that you need to make more substantial monthly payments or sell some assets. If you had just set up the direct debit payments in the first place, you probably could have avoided that situation.
Requirements for Financially Verified Installment Agreements
Here are most of the criteria to qualify for a financially verified installment agreement.
- Taxes you owe is more than $100,000 including fees and interest.
- The balance you owe between $50,001 and $100,000 and don’t want to set up direct debit payments.
- All required tax returns for the last five years.
- Your spouse (if applicable) has filed all tax returns for the last five years.
- No payments are currently being made on an IRS installment agreement.
- Currently, you are not in bankruptcy.
- An offer in compromise has not been accepted in recent years for your taxes owed.
- You can pay off your taxes within 72 months if you owe less than $50,000 or within 84 months if you owe between $50,001 and $100,000.
- You have submitted Form 9465 (Installment Agreement Request) and Form 433-F.
- The balance of the taxes cannot be paid in full b your savings, stocks, bonds, or retirement accounts.
- You cannot borrow the money against existing assets or sell your assets to cover the amount owed.
How to Apply for a Financially Verified Installment Agreement
Follow these steps if you want to apply for one of these payment plans.
- File all required back tax returns. The IRS requires this for all tax settlement and payment agreements.
- Fill out Form 9465 (Installment Agreement Request).
- Complete Form 433-F. Gather details about your income, assets, liabilities, and other personal finances before you start filling out the form. You need those details to fill out the form correctly.
- Calculate your estimated monthly payments. With a financially verified installment agreement, you have to take your assets into account when making your payment proposal. To make those calculations easier, you may want to work with a tax professional such as a CPA or an Enrolled Agent.
- Make copies of three months worth of financial data (bank records, paycheck stubs, income statements from your business etc) to include with Form 433-F.
- Write a check or get a money order for the application fee. As of 2017, the fee is $225 or just $107 if you agree to make payments through direct debit.
- Consider including the first month’s payment. This is not required, but it can help to show the IRS you are serious about repaying your back taxes.
- Make copies of all your forms before sending them to the IRS. If something gets lost, these copies can be essential.
- Double check everything on the form—mistakes can lead to rejections.
- Sign and send everything to the IRS.
What Happens After Applying for a Financially Verified Installment Agreement?
Usually, the IRS responds to installment agreement requests within 30 days. With financially verified installment agreements, the IRS may require you to liquidate some assets before approving your agreement. If your installment agreement gets approved, make the payments on time. Make sure that you have enough money in your account to cover the payments if you signed up for automatic payments.
If the IRS rejects your installment agreement, you can appeal using Form 9423 (Collection Appeal Request). You have 30 days after receiving your rejection letter to appeal. Make sure to reach out to the IRS during this window of time. If you don’t, the IRS can start collection activity on your taxes after the 30 days have elapsed. You only get one chance to appeal so it’s especially important to get help.
Partial Payment Installment Agreement
A partial payment installment agreement (PPIA) is when you make payments towards your taxes that are lower than are required with a standard IRS installment agreement. This means that some of the taxes may be forgiven since the taxes won’t be collected by the collection statute expiration date (CSED). The IRS will check in periodically to see if your financial situation has changed to assess if you can pay more. If your financial situation has not changed, then it is likely the remainder of the taxes will not be required to be paid.
How to Apply for a Partial Payment Installment Agreement
To apply for a partial payment installment agreement, you need to complete the following steps.
- Fill out Form 9465 (Installment Agreement Request Form). This form allows you to apply for a range of installment plans.
- Decide how much you can pay each month, and see if that amount meets the IRS’s expectations. Usually, the IRS wants you to pay off your taxes within six years, and Form 9465 tells you to divide your tax liability by 72 to calculate the proposed monthly payment. For instance, if you owe $10,000, the suggested monthly payment is $139. If you can pay that amount or more, you can get a regular installment plan. If you can’t pay that much, you need to complete these steps and apply for a partial payment installment agreement.
- Complete IRS Form 433-F (Collection Information Statement). This form requests information about your assets, income, liabilities, and other finances. The IRS uses this information to decide whether or not to approve your payment plan.
- Write a letter stating that you want a partial payment installment agreement, and attach that to your forms.
- Gather three months of back up documentation for all income and expenses that you reported on Form 433-F.
- Send everything to the IRS and hope your plan gets approved.
For best results, you may want to work with a tax professional. The information you need to provide on Form 433-F is quite detailed and making a mistake can lead to rejection.
Assets and Partial Payment Installment Agreements
Generally, the IRS is more likely to approve your partial payment installment agreement if you have no assets. If you have assets, you may have to liquidate them to get your agreement approved.
However, there are some key exceptions. In the following situations, the IRS usually doesn’t require you to sell your assets.
- The asset is unmarketable.
- There is not enough equity in your assets to get a loan on it.
- Your spouse owns the asset but isn’t liable for the tax amount owed.
- The assets you own produce income that can help to cover your payment arrangements, and selling the asset would result in less money for the IRS.
- Selling the asset would create undue economic hardship for you. To illustrate, imagine your only asset is your primary residence. If you sold your home and had to rent, you wouldn’t be able to make ends meet. In situations like this, the IRS lets you keep the asset.
Even if your assets fall into these categories, you still need to list them on Form 433-F. To improve your chances of keeping your assets, you should hire a tax professional. They can help to convince the IRS that you don’t need to liquidate your assets.
Note that Form 433-F is a streamlined version of 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) and 433-B (Collection Information Statement for Businesses). In the past, the IRS used to require 433-A or B, and in some cases, the agency may still request those forms, as they contain more details.
Partial Payment Installment Agreements and the Collection Statute Expiration Date
There is a statute of limitations on the tax owed, and once that statute expires, the IRS can no longer pursue collection activity. Typically, with a partial payment installment, you make payments on the taxes, and when the collection statute expiration date occurs, some of the taxes expire. The expiration date is a crucial part of these plans.
However, in some cases, the IRS may require you to sign a collection statute expiration date waiver. The waiver means that you agree that your tax liability won’t expire on that day. This tends to only happen in rare cases.
To explain, imagine that you have a trust fund, but you won’t start getting payments for three years. Your tax liability is due to expire in two years. In this case, the IRS may require you to sign the waiver, and the agency may expect you to pay a portion of your trust fund payments toward your tax liability. If you refuse to sign the waiver in a case like this, the IRS may not approve your agreement.
Two Year Reviews for Partial Payment Installment Agreements
Once you enter a partial payment installment agreement, the IRS does an automated review of your case every two years. If the automated review doesn’t show anything new, your plan should continue as expected. If something new shows up, the IRS may request a manual review, and you may be required to submit a new financial statement.
Approval for Partial Payment Installment Agreements
When reviewing your request, the IRS looks closely at the forms listed above. On top of that, you also need to be compliant with all past and present IRS obligations. That means you need to file all required old tax returns. You also must be current on your estimated quarterly tax payments or your federal tax deposits if you own a business. If you are employed, your employer needs to be withholding enough from your paycheck. If you need your employer to withhold more from your paycheck, ask to fill out a new W4 form. That’s the form where you note your exemptions.
Obtaining a partial payment installment agreement can be difficult, and you may want to use a tax professional to help with the filing. A tax professional can evaluate your finances and determine if the partial payment option is best you. Alternatively, a tax resolution specialist can help you apply for an offer in compromise (settling taxes for less than you owe) or whichever arrangement is best for your situation.
An In-Business Trust Fund Installment Agreement is an installment agreement for unpaid trust fund taxes (payroll taxes). To qualify, your business must owe less than $25,000, and you must be able to pay off all the tax liability within 24 months. If you owe over $10,000, you have to set up automatic payments.
How to Apply for an Installment Agreement
To apply for an installment agreement, use Form 9465 (Installment Agreement Request). If you owe less than $50,000 (including penalties and interest), you can use the IRS’s Online Payment Agreement to apply. If you owe between $50,001 and $100,000, you can only apply online if you can pay off the taxes in 120 days.
These numbers also apply to sole proprietors and independent contractors. If you have another type of business (corporation, LLC, etc.), you can only apply online if you owe less than $25,000.
Fees to Set Up IRS Installment Agreements
There are one-time fees for setting up installment agreements. As of 2017, the fees are the following amounts:
- Free to set up a short-term (120 days or less) payment agreement online.
- $31 to set up a long-term payment agreement online, if payments are direct debit.
- $149 to set up a long-term payment agreement online, if payments are not direct debit.
- $225 for installment agreements set up with Form 9465, in person, or over the phone.
- $107 for installment agreements paid with direct debit and set up with Form 9465, in person, or over the phone.
- $43 if you qualify for the low-income rate and you set up the installment agreement with Form 9465, in person, or over the phone. The IRS lets you know if you qualify for this special rate. The income your report on your tax return will determine the rate.
- $89 to restructure or reinstate an existing installment agreement.
What Happens After You Apply for an Installment Agreement
Usually, the IRS accepts or rejects your installment agreement request within 30 days. If you meet the requirements, the IRS automatically accepts guaranteed and streamlined installment agreements. To learn about the acceptance processes for the other types of agreements, check out the links above.
If you miss a payment or if you fall behind on other taxes that you owe, the IRS may terminate your installment agreement. However, in some cases, if you incur additional tax liability, you can roll those amounts into your existing installment agreement. The IRS only lets you do that if the new amounts don’t add much time or money to the agreement. Additionally, if the IRS finds out that you shared incorrect financial information on your application, the agency can also terminate your agreement.
Help to Set Up an IRS Installment Agreement
To get the best outcome when negotiating an installment agreement with the IRS, call 1-800-928-5035 or fill out the form below. That connects you to a tax professional who can help you decide on the best solution for your needs. The consultation is free.