No one likes owing money to the government. If you don’t have enough money to pay your IRS bill when it’s due, you can set up a tax payment plan to settle your federal tax balance without disrupting your lifestyle. To be eligible for an IRS payment plan, you must be current with your tax filings and have already received at least one bill about your tax debt.
What is an IRS payment plan?
An IRS payment plan is an agreement to pay a federal tax debt within a specific timeframe. Depending on how much you owe, you can opt into a short-term or long-term payment plan for owed taxes. Unlike IRS tax relief programs, payment plans do not reduce your total tax debt.
What kind of payment plans does the IRS offer?
The IRS offers multiple types of payment arrangements. If you’re not sure which IRS tax repayment plan is best for you, consider hiring a tax professional to help navigate your repayment options.
- Guaranteed installment agreement: The IRS automatically agrees to installment payment plans if you owe less than $10,000 and have filed your tax returns on time for the past five years. For guaranteed installment agreements, your minimum monthly payment is equal to your total tax debt (plus interest and penalties) divided by 36.
- Partial payment installation agreement: Partial payment installment agreements (PPIA) are determined by what you can afford to pay instead of the total amount you owe. The IRS calculates monthly installment payments based on your income after essential living expenses. Only those with less than $10,000 in tax debt, limited assets and no previous bankruptcies qualify for a PPIA.
- Individual payment plan: Individual payment plans are for people who owe taxes but don’t qualify for a guaranteed installment agreement. Short- and long-term individual payment plans are available for taxpayers who owe less than $100,000 in taxes, including penalties and interest. Individual payment plans are available with or without automatic withdrawal.
- Short-term payment plan: Short-term payment plans are for those who owe less than $10,000 and can pay the balance within 120 days.
- Long-term payment plan: Long-term payment plans, also called installment agreements, are for those who owe more than $50,000 and need longer than 120 days to pay their full tax debt balance.
How to set up IRS payments
If you need to set up a payment plan to eliminate your tax debt, follow these steps:
- Determine your total unpaid tax debt: You must file all back tax returns to determine your total tax balance before you can apply for an IRS payment plan. You can also request tax return information through Form 4506-T or access your IRS account information online.
- Consider your options: The IRS offers multiple types of debt relief programs and has several ways to settle unpaid tax balances. Your tax payment options are primarily determined by how much you owe the IRS and your current financial circumstances.
- Gather necessary documents: You need an Installment Agreement Request (IRS Form 9465) if you owe taxes on your individual income tax return (Form 1040). If you owe more than $50,000 and can’t file Form 9465 online, you must complete a Collection Information Statement (Form 433-F). If you think you might qualify for low-income taxpayer status, consult the Application for Reduced User Fee for Installment Agreements (IRS Form 13844). In some instances, Form 2848 is required to authorize Power of Attorney or declare a representative.
- Complete IRS payment plan application: Individuals and businesses can apply for payment plans online, over the phone, by mail or in person. Individuals applying for an IRS payment plan need to provide:
- Their name (exactly as it appeared on their most recent filed tax return)
- A valid email address
- The address from their most recently filed return
- Their date of birth
- Their filing status
- Their Social Security or Individual Tax ID number.
Payment plan applicants must also confirm their identity with a financial account number, mobile phone registered in their name or IRS activation code.
- Wait for approval: The IRS approves streamlined applications in as little as 15 minutes when you apply online, and it approves phone applications in about an hour. It can take up to two months for the IRS to approve an installment application submitted through the mail and even longer if your tax bill is more than $100,000.
- Pay setup fees: The setup fee for an installment agreement with IRS varies depending upon the plan you select. Application fees for direct debit installment agreements are $31 when you apply online and $107 when you apply by mail, phone or in person. If you set up an installment agreement with direct pay, expect to pay a $149 setup fee if you apply online or $225 if you apply by phone, by mail or in person.
- Keep up with payments: You must manage your IRS installment plan payments responsibly. If you don’t, the IRS can cancel your installment agreement and put you in default for missing payments. Always try to mail your check at least a week before it’s due and consider enrolling in IRS Direct Pay.
IRS payment plan costs and fees
IRS payment plan costs vary based on which plan you select. The total cost of IRS payment installment agreements includes accrued penalties and interest until the balance is paid in full. Combined, these can add up to 8% to 10% a year, so paying promptly reduces your total tax debt.
Setup fees for long-term installment agreements are reduced if you apply online instead of by phone, by mail or in person. You are eligible to apply online for a long-term payment plan if you owe less than $50,000 and have filed all required returns; you can apply for a short-term payment plan online if you owe less than $100,000.
IRS installment agreement fees are also reduced if you opt into automatic withdrawal payments from a checking or savings account through direct debit. IRS payment plan fees are waived or reimbursed for low-income taxpayers who are below the federal poverty level.
|Long-term payment plan without direct debit||Long-term payment plan with direct debit||Short-term payment plan|
|Maximum tax debt*||$25,000||$50,000||$100,000|
|Payment length||More than 120 days||More than 120 days||Less than 120 days|
|Apply by phone, mail or in-person||$107||$225||$0|
|Fee to revise plan online||$10|
|Maximum tax debt*||Payment length||Apply online||Apply by phone, mail or in-person||Fee to revise plan online|
|Long-term payment plan without Direct Debit||$25,000||More than 120 days||$31||$107||$10|
|Long-term payment plan with Direct Debit||$50,000||More than 120 days||$149||$225|
|Short-term payment plan||$100,000||Less than 120 days||$0||$0|
Pros and Cons of IRS payment plans
IRS payment plans or installment agreements have advantages and disadvantages. On the plus side, setting up a payment with the IRS reduces the financial burden and stress of owing taxes. However, the process can be confusing without the guidance of a tax attorney or tax relief professional.
- Automatic approval: Taxpayers can get automatic approval if they owe less than $10,000 when they apply online.
- Customizable: You can select from different repayment plan options, choose your monthly payment amount and change your plan if needed. You can also decide to pay the balance in full if your financial situation improves.
- More time: Setting up a payment plan with the IRS gives you up to 72 months to pay back taxes.
- Avoid failure-to-pay penalties: The failure-to-pay penalty is 0.5% each month, up to 25% of the amount of unpaid taxes, until the balance is fully paid.
- Statute of limitations: Entering an installment agreement causes the IRS statute of limitations to start tolling. After ten years, the agency can’t attempt to recover the debt.
- Not everyone qualifies: You are disqualified from tax payment plans if you haven’t filed the current year’s taxes. You are also ineligible to enroll in certain programs if you have an open bankruptcy proceeding or owe more than $100,000.
- Enrollment fees: Signup fees can total up to $225. Keep in mind that the IRS charges additional fees to pay with a credit card.
- Interest: Tax debts on IRS payment plans continue to earn interest, which increases the total amount you have to pay.
- Vulnerable to liens: Entering into a payment plan or installment agreement doesn’t always stop the IRS from filing a federal tax lien against you.
IRS payment plan FAQ
- Does the IRS have payment plans?
- Yes, the IRS has payment plans. The IRS offers payment plans for those who can’t afford their tax balance when it’s due, which allows people to avoid levies and garnishments. Monthly payment amounts on an IRS payment plan vary based on how much tax debt you owe.
- Can you pay taxes in installments?
- Yes, you can pay taxes in installments if you enroll in an IRS tax payment plan.
- Can you have two installment agreements with the IRS?
- No, you can’t have more than one installment agreement. But if you already have a payment plan and owe taxes in the next year, you can revise your existing agreement to include the additional tax debt.
- What forms of payment does the IRS accept?
- The IRS accepts payments by credit card, check and money order over the phone and online or by cash through a retail partner. You can make installment agreement payments to the IRS through direct debit from a checking or savings account, the Electronic Federal Tax Payment System (EFTPS) or payroll deductions from your employer.
- Can I pay IRS online?
- Yes, you can make online tax payments to the IRS through their payments page or the IRS2Go app.
- Can the IRS refuse a payment plan?
- Yes, the IRS can refuse a payment plan. Most commonly, the IRS denies a payment plan application if you have defaulted on a previous installment agreement, if you’re still in the process of paying a tax debt from a prior year, if the plan doesn’t require you to pay the full debt during the agreed term or if your living expenses appear too excessive.
- What interest rate does the IRS charge for installment agreements?
- The IRS determines interest rates quarterly. Rates are equal to the federal short-term rate plus 3%. Interest is charged from the due date of the tax return until it is paid in full.
- What is a Direct Debit Installment Agreement?
- A Direct Debit Installment Agreement is when you agree to make direct payments to the IRS through your bank account. Individuals with tax debts of more than $25,000 are required to set up payment through direct debit.
- Can the IRS revoke an installment agreement?
- Yes, the IRS can revoke an installment agreement if you miss a payment, if you don’t file a tax return, if you provide inaccurate information on Form 433-F or if there is a major change in your financial circumstances.
- Can you make monthly payments to the IRS?
- Yes, you can arrange to make monthly payments to the IRS. You can make a payment to the IRS by phone, mail or electronically through IRS Direct Pay.
- How can you stop the IRS from garnishing your wages?
- To qualify for the release of a wage garnishment, you must provide proof of income and expenses to show that wage garnishment creates financial hardship for you.
Bottom line: Payment arrangements with IRS
The IRS wants to recoup as much tax debt as possible and works with you if you can’t pay all at once. Whether you owe less than $10,000 or more than $100,000, there’s a payment plan for you to settle your tax debt. It’s always in your best interest to set up a payment plan with the IRS to avoid garnishments, levies and liens.
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