If you are unable to fully pay your tax debt, you may be able to establish a payment plan.
There are two types of payment plans:
- Short-term payment plan: The IRS offers additional time (up to 180 days) to pay in full. It’s not a formal payment option, so there’s no application and no fee, but interest and any penalties continue to accrue until the tax debt is paid in full.
- Long-term payment plan (Installment Agreement): The IRS offers the following formal payment arrangements, also known as installment agreements: Pay as you earn (PAYE) is an installment agreement based on your income and family size. There’s no application fee, but you must provide financial information to the IRS.
Payroll deduction is an installment agreement if you have wages, salary, or pension income that is subject to withholding.
Payment with return is an installment agreement if you’re filing a return and have tax due. You can pay the balance due shown on your current year’s return or on a prior year’s return.
If you owe $50,000 or less in combined tax, penalties, and interest for all years involved in the installment agreement request, the IRS will not charge a fee for this payment option. If your outstanding tax liability exceeds $50,000 at the time of application (or during any subsequent year), there’s a fee of 0.5% per month (maximum of 12%) to continue with the plan. The monthly payment amount will be determined by dividing your outstanding tax liability by the number of months in the plan period. The monthly payment amount may be rounded up to cover any shortfall from smaller payments made during any month(s) of a plan period when actual payments were less than the required monthly payment amount for that month(s). If there are no payments made under this long-term plan during any month(s), there will be no partial payment applied to reduce future required monthly payments for that month(s when repayment will take more than 180 days.
Prepare for the agreement
Before you request an installment agreement, you should know:
- The IRS will not consider an installment agreement until you’ve filed all your tax returns.
- Once you’ve signed an agreement, you must file and pay future taxes on time or the agreement may default.
- You may have to pay a fee to set up an installment agreement, regardless of whether the IRS agrees to one. If you have a lot of income, an installment agreement may also include penalties and interest.
- If the IRS approves an installment agreement, it will generally keep any tax refunds and apply them to your debt.
- If the IRS agrees to an installment agreement, it may still file a Notice of Federal Tax Lien. For more information, see Publication 594, The IRS Collection Process.
- If you request an installment agreement, the time the request is pending pushes out, or suspends the running of, the initial ten-year collection period. Generally, an installment agreement request is pending until it is reviewed; and is established, or the request is withdrawn by you or rejected by the IRS. If the requested for an installment agreement is rejected, the running of the collection period is suspended for an additional 30 days. Similarly, if you default on your installment agreement payments and the IRS proposes to terminate the installment agreement, the running of the collection period is suspended for an additional 30 days. Last, if you exercise your right to appeal either an installment agreement rejection or termination, the running of collection period is suspended from the time the appeal is pending to the date the appealed decision becomes final.
- If the IRS approves an installment agreement, you must make your agreed upon payments on time.
You may request an installment agreement on Form 9465. Form 9465 is used to apply for both an offer-in-compromise and an installment agreement. You can request a multi-year payment plan with the IRS using Form 9465. The IRS will contact you if it needs more information or documentation in order to process your request. You can also call the IRS to find out if your application has been processed and what your next steps should be.
If you do not pay the required amount on time, the IRS may take further collection action. If your income increases, you must immediately contact the IRS to make arrangements to pay more. The IRS may also require that you submit a new Form 433-A. If this occurs, your plan will be reopened and interest and penalties may be added to what you owe. You will have to pay these additional amounts before you can make any further payments under your plan.
If your income has decreased substantially since filing your return or receiving a previous installment agreement, it is important that you contact the IRS immediately as new payment amount(s) may be required or your request for an installment agreement may need to be denied.
If you are having trouble making your installment agreement payments, you should contact the IRS immediately. The IRS may be able to help you restructure your payments to fit your current financial situation.