IRS Installment Agreement
IRS Tax Payment Plan Options & How They Work
IRS Installment Agreement
IRS Installment Agreement or IRS tax payment plan can help income taxpayers pay off their tax debt over a period of time in the form of an installment loan agreement.
Typically, IRS payment plans take five years or less to complete.
The monthly payments are based on how much you owe and how much you can afford to pay each month.
The IRS may grant extensions to your IRS tax payment plan installment loan agreement under certain conditions if you can't pay IRS installment agreement.
You are just about to file your income tax returns.
You discovered that you might be unable to pay the taxes due. What are your payment options?
Reason A: You owed more than you can pay.
Reason B: You just completed your return.
IRS installment agreements are one of your options if you can’t pay your federal taxes in full when they’re due.
These agreements are payment plans, & allow you to pay your debt over a time you establish with the IRS.
If you set up an automatic withdrawal from your bank account you will not forget about the monthly payment.
There are several types of IRS tax payment plan.
- In Business; and
Before you consider an IRS installment agreement
Review the tax debt to be sure you owe it.
If you don't believe you owe the tax, now is the time to talk to the IRS about it.
If you’ve received an IRS notice, start by calling the number on the notice to discuss the amount you owe.
Prepare for the IRS installment agreement
Before you request an installment agreement, you should:
1) File all required tax returns (even if you can’t pay)
- The IRS will only agree to an installment agreement if you’ve filed all your returns.
- Once you’ve entered into an agreement, you’ll have to pay all future taxes on time or your agreement may default.
2) Review your bills to figure out how much you can afford to pay the IRS each month.
Consider other resources
Can you borrow from a financial institution or a family member to pay the balance? If so, it will probably cost you less money since the IRS charges you interest even though you’re on a payment plan. You may also avoid some penalties and associated interest, by paying the IRS sooner. Compare the costs for your situation.
Types of Installment Agreements (IA)
Guaranteed Installment Agreements
You have the right to an agreement without submitting a financial statement if:
- The amount of tax you owe (not counting interest and penalties) is less than $10,000.
- You (and your spouse, if you filed a joint tax return) have filed and paid all taxes due for the last five years.
- Neither you (nor your spouse, if you filed joint) have had an installment agreement with the IRS in the previous five years.
- You can pay the full amount you owe within three years.
- You agree to pay the liability before the period for collecting the tax expires.
- You comply with the tax laws during agreement.
Streamlined Installment Agreements
There are two types of Streamlined Installment Agreements, depending on how much and what type of tax you owe. For both types, you must pay the debt in full within 72 months (six years), and within the time limit for the IRS to collect the tax, but you won’t need to submit a financial statement.
Assessed tax liability under $25,000 (include all assessed tax, penalty and interest in computing the balance due).
This is available to:
- Businesses that are still operating and only owe form 1120 income tax or form 1065 late filing penalties; and
- Businesses that have gone out of business that owe any type of tax.
Tax liability from $25,001 to $50,000 (include all assessed tax, penalty and interest in computing the balance due).
This is available to:
- Individuals; and
- Out-of-business sole proprietors.
Note: To get this type of agreement, you must pay through either a direct debit or payroll deduction agreement.
Partial Pay Installment Agreement
With a partial pay installment agreement, you must have some ability to pay your taxes but can’t pay in full within the remaining time the IRS has to collect. The IRS may allow you to make payments until this collection period expires.
Contact the IRS at 800-829-1040 (TTY/TDD 800-829-4059) or the number on the notice to discuss this option. If you’re in this situation, you might also want to consider submitting an Offer in Compromise to settle your taxes instead of an installment agreement.
In-Business Trust Fund Express Agreement
An In-Business Trust Fund Express agreement may be available for businesses that owe up to $25,000. You must pay the debt in full in 24 months or before the collection period expires, whichever is earlier. You can also pay down the liability to $25,000 or less and then apply.
Routine Installment Agreements
If you don’t meet criteria for guaranteed, streamlined, or in-business trust fund express installment agreements, you can still request an installment agreement from the IRS.
You can request a routine installment agreement by mail, but not online.
Documentation: The IRS may ask you for supporting documents for your income, expenses, and other amounts you owe (For example: Home and car loan payments, other obligations.) The IRS publishes and uses national and local standards to determine allowable monthly expenses and arrive at the appropriate monthly payment. If you feel you should be allowed more than the standard amount, provide reasoning with your application.
The Six Year Rule: Generally, if you only owe individual income tax, you may qualify for the Six (6) Year Rule. You’d need to provide financial information but not proof of reasonable expenses. You must stay current with all filing and payment requirements, including projected penalties and interest on the tax debt, and fully pay the installment in six years (72 months) and within the collection statute - the time the IRS has to collect the amount you owe.
The One Year Rule: If you can’t pay your debt in full within six years, you may be given up to one year to modify or eliminate excessive necessary expenses. By modifying or eliminating these expenses, you may be able to pay the liability, plus accrued interest and penalties, within the six-year limit.
Fortunately, the IRS allows taxpayers to negotiate repayment terms on what you owe them. TheCPATaxProblemSolver specializes in tax debt relief solutions such as installment agreement. I can help you settle your back tax bill for a payment that you can afford.
Here are a few rules to keep in mind for all IRS tax payment plans
If you owe tax for more than one tax year, you have to bundle all the taxes you owe into one installment agreement.
The IRS generally has 10 years to collect tax debts (called the collection statute expiration date).
If your expiration date is coming up, you may have to make higher monthly payments, and you could even be disqualified from some types of agreements.
To request some types of installment agreements, you’ll have to give the IRS your financial documents, including your assets, income, and expenses.
In some cases, the IRS can limit your expenses to a “reasonable” amount when it’s calculating how much you can afford to pay every month.
These are collection financial standards.
Some agreements come with a federal tax lien, which is a public record of your tax debt.
Federal tax liens can affect your ability to get loans and sell property.
It’s important to file and pay on time so you don’t default on your agreement.
What are the fees for an IRS tax payment plan?
The cost of an IRS payment plan depends on which plan you choose, how you apply for the plan and whether you qualify for a fee reduction.
Maximum you can owe
Short-term payment plan* (180 days or less)
$100,000 in combined tax, penalties and interest.
Long-term payment plan** (120 days or more)
$50,000 in combined tax, penalties and interest.
* On Nov. 2, 2020, the IRS extended this from 120 days.
** Also called an “installment agreement” or a Direct Debit Installment Agreement (DDIA)
You may qualify as a low-income applicant if your adjusted gross income is at or below 250% of the federal poverty level. (See if you qualify on IRS Form 13844.) If you’re a low-income taxpayer, the IRS waives the user fee if you agree to let it make automatic withdrawals from your bank account for the payments. If you qualify as a low-income taxpayer but are unable to make electronic debit payments, the IRS will reimburse you for the user fee when you pay off your balance.
If you make your payments with a debit or credit card, you’ll have to pay a processing fee. The charge for debit cards runs about $2 to $4 per payment; the charge for credit cards is about 2% of the payment.
If you owe more than $25,000, you have to make your payments via automatic withdrawals from a bank account (“direct debit”).
How to Apply Online for an IRS Installment Payment Plan
You can apply for a payment plan (including payment agreement) online to pay off your balance over time if you are an eligible taxpayer or authorized representative (Power of Attorney).
You will receive immediate notification of whether your payment plan has been accepted once you complete your online application.
Time Needed: 60 minutes
Setting up a direct debit payment plan online would cost $31, or $107 if set up by phone, mail, or in-person, if you can not pay off your balance within 120 days. If direct debit is not used, then it will cost $149 to set up the plan online. USD 140
Things Needed ?
What does an Installment Agreement Cost?
Pay Now Pay Now
-Setup fee of $0
-No additional fines or added interest
Pay the entire amount due today from your checking or savings account (Direct Pay) or by check, money order or debit/credit card directly.
When paying by card, fees apply.
Short-term Plan for Payment (120 days or less)-Setup fee of $0
-Plus accumulated fines and interest before complete payment of the balanceYou will pay the amount owed directly from your checking or savings account (Direct Pay) or by check, money order or debit/credit card after applying for a short-term payment plan.
When paying by card, fees apply.
Long-term (Installment Agreement) Payment Plan (Pay in more than 120 days with monthly payments)
-Pay by automated withdrawals on a monthly basis
Setup fee of $31 (low income: setup fee waived)
Plus accumulated fines and interest before complete payment of the balance
Pay balance owed by Direct Debit (automatic payments from your checking account). A Direct Debit Installment Plan is also known as (DDIA).
This is needed if there is more than $25,000 in your balance.
Pay per month (non-Direct Debit)
Setup fee of $149 (low income: setup fee of $43 that can be refunded if no requirements are met)
-Plus accumulated fines and interest before complete payment of the balance
Pay the amount due by non-direct debit (not automated) recurring transfers after applying for a long-term payment plan, including payments directly from your checking or savings account (Direct Pay) or through check, money order or debit/credit card.
When paying by card, fees apply.
Revise or reinstate a current payment plan (installment agreement) after default
$10 fee, which can be refunded if you are recognized as low income and certain criteria are met.
Revising A Payment Plan
-By logging into the Online Payment Agreement tool using the Apply/Review button below, you can view specifics of your current payment contract (type of agreement, due dates, and amount you need to pay).
Using the online payment agreement tool, what you should adjust
To make the following changes, you can use the Online Payment Agreement tool:
-Adjust your sum of monthly payment
-Changing the due date of your monthly payment
-Convert an existing contract to a Direct Debit contract
-After default, reinstate
You may use the Apply/Revise button below to log into the Online Payment Agreement tool.
Use the Apply/Revise button below to log in to the Online Payment Agreement tool. You may revise your existing plan form, payment date, and sum on the first tab. Send your changes then.
You will be asked to revise the payment amount if the current monthly payment amount does not meet the criteria.
You will receive instructions for completing a Form 433-F Collection Information Statement PDF and how to apply it if you are unable to make the minimum payment sum required.
You will incur a reinstatement fee if your plan has lapsed by default and is being restored.
UNDERSTANDING IRS TAX PAYMENT PLANS
An installment agreement is an arrangement granted by the IRS. It indicates that the taxpayer can pay his or her outstanding taxes in equal monthly installments over an extended period of time. Do note that interest is applied to the balance owed.