Can the IRS Set Up Payment Plans for Taxpayers?

Andrea Miller
Expert Contributor
Last Updated:
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  • Taxpayers who owe less than $50,000 can establish a payment plan with the Fresh Start Program.
  • Taxpayers who owe more than $50,000 can negotiate for a payment plan but must include their financial information.
  • Making payments as agreed upon can prevent the IRS from taking other collection actions.

 

The Fresh Start initiative gives taxpayers a streamlined way to set up an IRS tax debt payment plan. If you need more time to pay your taxes and owe less than $50,000, you can automatically qualify for a monthly payment agreement for up to 72 months.

Do I Qualify?

To meet the qualifications for Fresh Start, you must file all outstanding tax returns. Self-employed individuals must be current on their quarterly estimated tax payments.

How Do I Apply?

The easiest and most cost-effective way to enter an installment agreement is with the IRS Online Payment Agreement Application tool. You can apply by phone for an additional charge by calling the number on your IRS notice or 800-829-1940. Apply by mail or in person with a paper copy of Form 9465, Installment Agreement Request.

To apply online, you must have no more than $50,000 in combined tax debt, penalties, and interest. All your outstanding tax returns must also be filed. If you have more than $50,000 in tax debt, you will need to submit additional financial information so that the IRS can determine whether you qualify for a payment plan.

Can the IRS Set Up Payment Plans for Taxpayers?

Tax debt of more than $50,000 requires you to submit Form 433-A. This form asks for documentation of all your bank accounts and lines of credit, real estate, vehicles, and other assets as well as employment information including monthly income and monthly living expenses. The IRS may require you to liquidate some assets to pay down the balance before agreeing to an installment plan.

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Are Costs Associated With the Payment Plan?

Your balance will be subject to a failure to pay penalty, assessed monthly at 0.5% of your balance. Interest will also be charged on the combined debt and fees, based on the federal prime rate.

Balances paid within 120 days through debit card, money order, check, or checking account debit will not be subject to an application fee.

Set-up fees for longer agreements (up to 72 months) are as follows:

  • $43 for low-income taxpayers, including those who earn up to 250 percent of the federal poverty threshold amount
  • $31 for those who apply online and opt for automatic check withdrawal payments ($107 in person, by phone, or by mail)
  • $149 for those who apply online and opt out of automatic check withdrawal payments ($225 in person, by phone, or by mail)

How Much Is My Monthly Payment?

When you apply for an installment agreement through Fresh Start, you can propose a monthly payment that you can afford. The amount must be $25 or more and be sufficient to pay the full balance in no more than 72 months.

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How Much Tax Debt Do You Owe?

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Taxpayers who owe less than $10,000 can apply for a guaranteed installment agreement. This form of agreement does not have a minimum payment as long as the balance is paid in full within three years. You must provide additional financial information to qualify by completing Form 433.

The IRS makes the ultimate determination about the monthly payment. Make sure you can afford the monthly payment amount before you agree to an installment plan. If you fail to make the payments, you will default on the agreement and IRS collection activity will resume. You may also be ineligible for a future installment agreement.

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While you will receive an immediate decision if you apply for the Fresh Start program, if you owe more than $50,000, you may need to wait several weeks or months for the IRS to agree to your suggested monthly payment amount. While you’re waiting for the IRS to make a decision about your installment agreement, make your proposed monthly payment as scheduled. Doing so will improve your chance of acceptance by establishing your intention to adhere to the terms of the agreement.

Can I Appeal an Installment Agreement?

Installment agreement plans are usually accepted. However, plans can be rejected if:

  • The IRS believes you are not being forthcoming about income or assets because of false or incomplete documentation on your Form 433.
  • Your stated living expenses are above what the IRS considers reasonable.
  • You defaulted on an installment agreement.

You have the right to appeal if your installment agreement is rejected. However, you can try to negotiate a higher monthly payment.

What Happens When My Agreement Is Approved?

When you have an approved installment agreement, you must make your monthly payment on time as agreed. You are also responsible for filing and paying all future tax returns on time. If you cannot afford to pay a future tax balance, you can request to amend your existing agreement to include the additional balance.

If you move to a new mailing address, you must complete the IRS Change of Address Form 8822 so that you will continue to receive invoices and correspondence related to the installment agreement.

Contact the IRS as soon as possible if you are unable to make a payment on your installment agreement. When you receive a notice of default, you will be responsible for paying a fee to reinstate the agreement. You can also have your agreement permanently revoked if you repeatedly miss payments.

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Although a federal tax lien remains on your property if you have an installment agreement, the IRS will not make attempts to collect your tax debt as long as you make payments as scheduled. Collections actions are also suspended when your requested installment agreement is under review, in the appeal process, or has been terminated or rejected within the past 30 days.

If you need help applying for a tax payment plan or if you are unable to pay your past-due taxes, contact Solvable today for tax debt solutions from experienced professionals. With help from Solvable, you could qualify for a program to reduce your amount owed and receive the tax debt relief that you seek.

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Andrea Miller
Expert Contributor
Last Updated: