5 Types of IRS Payment Plans and How to Choose One

Arian Azimzadeh
Expert Contributor
Last Updated:
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If you can’t afford to pay your owed income tax amount, you might be feeling overwhelmed by the thought of fines and penalties. Fortunately, working with the Internal Revenue Service (IRS) to resolve your outstanding back taxes doesn’t have to be daunting or stressful. In this post, we’ll share some of the most popular IRS payment plans and how they can provide practical solutions for conquering your upcoming tax payments.

What is an IRS Payment Plan?

An IRS payment plan is similar to other types of payment plans that allow you to pay off an existing balance or outstanding back taxes over time, as opposed to paying a lump sum immediately. Payment plans are useful when you are short on cash assets or when you need to space out the amount you give to a particular creditor each month.

Why Should I Choose a Payment Plan Option?

There are several reasons why you might choose a payment plan when working with the IRS. These might include:

  • Tax deductions that did not work out as you anticipated or that did not provide substantial savings on what you owe to the IRS
  • Changes to the tax code or to your individual income bracket that resulted in an increased tax burden at filing time
  • Needing additional time to come up with the cash to pay, or the desire to pay gradually

While choosing a payment plan does expand your options and provide some relief, keep in mind that securing any type of payment schedule for back taxes can actually cost more in the long run due to interest, penalties, and other fee assessments.

5 Types of IRS Payment Plans and How to Choose One

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5 Types of IRS Payment Plans

Working with the IRS to settle back taxes can sometimes feel confusing. That’s why many individuals turn to resources like tax hardship centers, attorneys, and certified public accountants for help. The list of payment plans below will give you a head start on figuring out which tax payment plan option is best for your personal situation.

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Guaranteed Installment Agreement

This type of IRS payment plan is best suited to those who owe less than $10,000. There are several qualifications for this type of plan, including the fact that you must have already filed all previous returns and your ability to pay the full amount falls within 3 years.

A guaranteed installment agreement is often reserved for very simple tax payment scenarios and is usually completed online. To qualify, you must not have used this type of payment plan previously within the past 5 years.

Streamlined Installment Agreement

A streamlined installment agreement raises the cap on the amount of taxes owed to $50,000; this amount does not include any penalties or interest. To be eligible for a streamlined agreement, you must be able to pay the full amount within a 6-year timeframe.

Based on the total amount, the IRS may require direct or automatic payments that are drafted from your personal bank account. If you’d like to qualify for a streamlined plan but owe an amount higher than $50,000, you may be able to reduce the total down and then re-apply.

 “Ability to Pay” Agreements

Occasionally, taxpayers owe too much to the IRS (sometimes in excess of $50,000), which requires a more specialized approach. In these cases, be prepared to work with a tax professional who can help you furnish all relevant financial details to the IRS in a timely manner.

An “ability to pay” agreement is a personalized plan that could potentially involve liens, expense limitations, and asset sales. By taking drastic measures to limit outside expenses, taxpayers show the minimum of what they can realistically offer.

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Partial Payment Agreement

If you simply cannot afford to pay your whole tax burden, the IRS may offer you a partial payment plan based on specific criteria. Because financial situations change, IRS officials assigned to your case may re-evaluate your standing every 2 years to determine eligibility.

With partial pay plans, there is typically a final deadline for repayment. Once you reach that date, you are no longer required to make additional payments.

Settlement Agreement

A settlement agreement is difficult to obtain, but it is essentially a compromise on the final owed amount for back taxes. The application for a settlement may be thorough and lengthy, but the end result is a reduced final payment amount. The average taxpayer may not be able to secure a settlement on their own, and it usually requires professional assistance.

Benefits of Payment Plans

While the best course of action is to always pay your back taxes on time and in full, sometimes that may not be realistic. A payment plan offers important benefits, such as:

  • An extended time frame for settling your back taxes or getting finances in order
  • Access to short and long-term options based on financial need
  • Continued contact with the IRS to avoid liens, levies, and other penalties
  • Options to pay as an individual, business, or Power of Attorney (POA)

Setting Up Your Payment Plan

To set up a payment plan with the IRS, you can easily apply online through the individual application. The IRS delivers immediate responses to inquiries about plans based on the personal details and tax amounts you submit. When establishing a new plan, you should be aware of:

  • User agreement fees
  • Interest and penalty charges
  • Administrative setup fees
  • Minimum monthly payment totals
  • Penalties for late or missed payments

You can review, change, or adjust your payment plan and transaction options at any time by visiting the Online Payment Agreement tool on the IRS website.

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Turn to the Experts

If you’re dealing with unresolved back taxes, there’s never been a better time to request help. Deciphering communication from the IRS can be tricky, and settling your back taxes effectively often requires outside assistance. The experts at the Tax Hardship Center can help you determine your eligibility for support and get you back on track financially.

Call today for a free case evaluation and to schedule an initial appointment with one of our tax hardship specialists.

Arian Azimzadeh
Expert Contributor
Last Updated: