The IRS will allow you to pay your past-due tax balance in monthly installments. Although you will be subject to late penalties and interest, an installment agreement lets you resolve your tax debt over time.
Discover ways you can set up a payment plan with the IRS.
You will not be accepted for an installment agreement unless all your tax returns have been filed. Even if you know you cannot pay the full amount that you owe, the failure to pay the penalty is only 0.5 percent of your balance assessed monthly, compared to 5 percent for the failure to file the penalty.
Taxpayers can apply for an installment agreement using the Online Payment Agreement Application tool. You can also submit Form 9465, Installment Agreement Request, at an IRS office or through the mail. A phone application is available by calling 800-829-1040.
These options are available to those who have less than $50,000 in tax debt, interest, and penalties. Individuals who have a higher balance will need to submit financial information with their request for an installment agreement. You may be required to sell assets to pay down your balance before being approved for an installment agreement.
You can avoid the installment agreement fee by paying off your balance in less than 120 days through direct debits from your checking account, check, or money order. For longer payment plans (up to 72 months), fees are as follows:
Taxpayers who earn less than 250 percent of the federal poverty threshold can apply for a reduced fee of $43. This cost can be reimbursed if you continually meet the terms of the installment agreement. Complete Form 13844, Application for Reduced Fee for Installment Agreements.
The longer it takes to pay off your tax balance, the more you’ll pay in interest and fees. If you have less than $50,000 in tax debt, you can propose a monthly payment amount in your installment agreement application based on what you can afford. This amount must be at least your total IRS account balance divided by 72. For example, if you owe $15,000, you can take six years to pay off the amount you owe at a minimum payment of about $208. Alternatively, you could propose a payment of $300 and have your debt paid off in 50 months, an option which can save you money on interest and penalties.
Those with less than $10,000 in tax debt can apply for a guaranteed installment agreement. With this plan, you are not tied to a specific minimum monthly payment as long as you pay on time each month and pay in full within three years. You must provide financial documentation to qualify for this plan.
Although your payment amount is ultimately at IRS discretion, do not sign an agreement with a minimum payment you cannot afford. If you default on your payments, your agreement may be withdrawn and you could be ineligible for a future installment agreement.
Most of the time, the IRS will agree to a reasonable payment plan that meets the guidelines described above. However, certain agreement proposals may be rejected. Reasons for rejection may include the following:
If your proposal is rejected, follow the information provided on the IRS notice to appeal or request a new agreement with a higher monthly payment amount.
You can avoid IRS collection actions such as a federal tax lien or levy by following the terms of your installment agreement. You must:
The IRS will not attempt to collect your outstanding debt after you have applied for a payment plan and while the request is under consideration, when the payment plan begins, for 30 days after a plan is terminated or rejected, or while that termination or rejection is under appeal.
If you can’t afford a small monthly payment, you may be eligible for an offer in compromise. With an offer in compromise, the IRS agrees to settle your tax debt for less money than you owe. You must make an offer of at least the amount the IRS can reasonably expect to collect from you before the 10-year statute of limitations on the debt expires.
You can also request currently not collectible (CNC) status if paying the debt would cause undue hardship. You will have to submit information about your assets, income, and living expenses. Although collection activities stop when your account is placed on CNC status, this status will be periodically reviewed.
In some cases, past-due tax debt can be discharged during bankruptcy proceedings. You should speak with a qualified bankruptcy attorney before considering this option.
If you need help applying for a tax payment plan or if you cannot afford to pay your past-due taxes, get in touch with the team at Solvable. Answer a few basic questions about your financial situation and be matched with a vetted company that specializes in tax debt relief. Get on the road to a promising financial future by taking advantage of our resources available to help taxpayers like you.