IRS Payment Plan
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What Is an IRS Payment Plan?
An IRS Payment Plan, also known as an Installment Agreement, represents an arrangement under which you pay your tax debt in installments over a period of time, plus interest and fees. For those who cannot pay their tax bills in full, it can be a beneficial option for resolving tax debt, allowing you to pay the IRS taxes you owe in manageable amounts.
When Should I Consider Applying for an IRS Tax Payment Plan?
If you cannot pay your taxes in 120 days or less, you may want to consider an IRS payment plan which will allow you to pay your tax debt over a series of monthly payments. Note that IRS payment plans carry interest, and make you subject to a Failure to Pay Penalty. However, the IRS will reduce latter penalty by 50 percent after they accept a payment plan proposal.
If you cannot pay your tax bill in full immediately, but can pay in less than four months (120 days), you can request such an extension using the OPA Application. This option carries no application fee, but you likely incur a Failure to Pay fee if your bill is not paid in full by April 15.
How Do I Set Up an IRS Tax Payment Plan?
There are two paths to IRS tax debt payment plans: One for debt of up to $25,000 (including interest and penalties), and one for debt of more than $25,000.
For debt of up to $25,000, you can apply for an online payment agreement, or OPA, which is a virtual Form 9465. You can also fill out the form over the phone, by calling the number provided on your bill. A third way to apply for the agreement is to fill out Form 9465 and mail it to the address provided on your bill.
To fill out the form, you need to know:
For debt of more than $25,000, begin by either calling the number on the bill or completing and mailing Form 9465 and Form 433F to the address on the bill. If you call, you may learn that do not need to file Form 433F.
After you apply for the Payment Agreement, the IRS will respond by mail, informing you of whether the terms you requested are acceptable or you need to modify them.
You say there are two paths to IRS payment plans. How many types of plans are there?
There are four types of IRS payment plans. You should decide which best suits your budget and other financial constraints.
Guaranteed Installment Agreement – If you owe the IRS more than $10,000, you should consider this option. To request this agreement, either use the IRS Online Payment Agreement Application, or file Form 9465. This payment plan is unique in that the IRS guarantees that it will accept it. Form 9465 requires you to provide monthly payment equal to or greater than the minimum monthly payment. To calculate the minimum payment, take the total amount you owe (including penalties and interest) and divide that number by 36.
Streamlined Installment Agreement – If you owe the IRS more than $10,000 but less than $25,000 (including penalties and interest) you can apply for this option by completing either the Online Payment Agreement Application or Form 9465. The IRS refers to this option as streamlined because in it, they will not require financial disclosure or verification of your income, expenses, and assets. To calculate your monthly minimum payment in this case, take the total amount you owe and divide by 50.
Financially Verified Installment Agreement – If you owe tax for over $25,000 or more, or you cannot make the minimum monthly payment on a Streamlined Installment Agreement, you should consider requesting this payment plan. In it, you must provide a financial statement to the IRS (Form 433-A, the Collection Information Statement). To complete it, you must list your assets, income, and liabilities; the IRS will determine your monthly payment by what you have the ability to pay each month as determined by Form 433-A. It is a good idea to work with a tax professional if you choose this option, because Form 433-A can be complex.
Partial Payment Installment Agreement – Consider this option if you do not qualify for any of the other plans, and you owe more than $10,000 in tax. It allows you to pay a monthly payment amount up until the Statute of Collection (SOC) expires on each period of your debt. Generally the SOC is 10 years minus the period from the assessment date. As the SOC expires on each period, that debt goes away, and will continue making monthly payments on the remaining balance. If the IRS rejected your application for an Offer In Compromise (OIC), this can be a particularly good option. As with the Financially Verified Installment Agreement, you should consider working with a tax professional on this option, because of its complex terminology and calculations.
Do I Need an Attorney to Apply for a Payment Plan?
While private individuals may apply for an IRS payment plan, tax attorneys can provide valuable advice that may either help you avoid the added expense of a payment plan, or save you money over the course of the plan.
What fees are involved in a Payment Plan?
All IRS Payment Plans include fees, which depend on your income and whether you allow the IRS to take the payment directly from a bank account. The basic fee is $105, which you can reduce to $52 if you allow the IRS to take the payments from your bank account. Taxpayers with incomes below levels set by the Department of Health and Human Services may qualify for a fee of $43.
What Happens If I Miss a Payment?
If you cannot make a payment on time due to a change in your income situation, you must inform the IRS of this change immediately. Failing to do so could result in the IRS declaring you to be in default of your agreement and taking enforcement action against you. Generally, the IRS will not take enforcement action under the following circumstances:
What If I default on My Payment Plan?
Taxpayers who default on their payment plans are subject to an additional fee of $45. This fee also allows the taxpayer to restructure the payment agreement. If you default on your plan and do not attempt to restructure it, you may be subject to IRS enforcement actions. Such actions include a Notice of Levy on salaries, bank accounts or other property or sources of income, and IRS garnishing of wages.
If I Have a Payment Plan, Will the IRS File a Notice of Federal Tax Lien Against Me?
The IRS may often file a Notice of Federal Tax Lien against you during the time that the Payment Plan is in force. This can have an adverse affect on your credit score.
May I Combine Several Tax Debts into One Payment Agreement?
It is possible to combine several IRS tax debts into one payment agreement. One typical case illustrating how this would happen is when someone already has a payment agreement in effect, and then receives an additional tax bill that cannot be paid in full. To combine the new debt into the existing payment agreement, the IRS requires a restructuring fee of $45.
Will I Receive Any Tax Refunds While I Am in a Payment Plan?
If you are eligible for any tax refunds while your payment plan is in effect, those refunds will be applied against your outstanding balance in the plan. You will not receive a check for the refund.