What Is the IRS Tax Payment Plan Interest Rate?

Andrea Miller
Expert Contributor
Last Updated:
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  • You may be eligible for an installment agreement to pay your federal taxes over time if you cannot afford to pay your full balance.
  • The IRS tax payment plan interest rate is currently 6 percent and is updated each quarter.
  • The only way to avoid accruing interest on your tax balance is to pay in full by April 15 for the previous tax year.

If you enter into an installment agreement with the IRS to repay your past-due tax balance, the full amount (including penalties), will be subject to interest. The IRS payment plan interest rate equals the federal short-term rate, which is established by the agency as a minimum interest rate for loans, plus 3 percent, rounded to the nearest whole percentage. Most recently, the short-term rate was listed at 2.72 percent in January 2019, with a rate of 6 percent for IRS installment agreements. This rate is updated each quarter and interest accrues daily.

When Does the IRS Begin Charging Interest?

If you do not pay your balance from the previous tax year by April 15, the IRS will begin assessing interest on this balance along with any applicable penalties. If April 15 falls on a weekend or holiday, the deadline is the next business day. Interest will accrue until your balance is completely paid.

When you make a payment, the amount is first credited to your tax balance, then to penalties, then to unpaid interest. If you successfully apply for a reduction of your tax liability and/or for penalty abatement, the interest that has already been charged will be adjusted and refunded accordingly. You must complete IRS Form 843 to apply for an interest reduction, which is only granted in cases of proven agency error.

What Penalties Are Charged by the IRS?

The most common taxpayer penalties are for failure to file and failure to pay taxes. Failure to file is much more expensive than failure to pay, so you should always file your tax return on time even if you know you will not be able to pay your balance.

The failure to file penalty is 5 percent of your balance each month to a maximum of 25 percent. The failure to pay penalty is 10 times less, just 0.5 percent of your balance. Like interest, penalties continue to accrue until your balance is paid in full.

What Is the IRS Tax Payment Plan Interest Rate?

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How Do I Apply for an IRS Tax Payment Plan?

The IRS offers several types of installment agreements for individuals who cannot afford to pay their taxes on time:

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  • Guaranteed installment agreements are available for taxpayers who owe less than $10,000, have filed all outstanding tax returns, have not made a late payment or filing in the past five years, and agree to apply all future tax refunds to the outstanding balance. This program does not require you to provide information about your finances; you will be automatically approved for a tax payment plan if you meet the criteria.
  • Individual installment agreements are offered to taxpayers who owe less than $50,000. If you can pay off the balance within 120 days, no fee is charged to enter the agreement. Longer agreements carry a fee that varies depending on the method of payment and your household income. To apply online for this plan, you must have filed all outstanding tax returns.
  • A partial payment installment agreement is available to individuals who cannot make the minimum monthly payment after paying for reasonable living costs. To apply for this type of agreement, you must submit Form 433 along with your application. This form asks for detailed documentation of your assets, income, and expenses. To qualify, you must have no outstanding tax returns or bankruptcies. If you have assets, you may be required to sell them to repay a portion of your back taxes. The IRS requires you to submit a new Form 433 every two years to determine whether you can afford a higher payment. The filing fee to apply for this type of agreement ranges from $107 to $225 but can be waived if your household income is below 250 percent of the federal poverty threshold for your area and household size.

How Much Will My Monthly Payment Be?

With a guaranteed installment agreement, you must repay your balance within 36 months. To determine your minimum monthly payment, divide your total liability, including penalties and interest, by 36. You can make a higher monthly payment if you want to pay your IRS debt sooner. Doing so will also reduce the amount of interest you pay over time.

Other types of agreements allow you to choose a monthly payment that you can afford. This amount must be at least the minimum payment, which is the total amount of your balance, penalties, and interest divided by 72. For example, if you owe $15,000 in tax, penalties, and interest, you must pay at least $208.33 per month.

For a partial payment installment agreement, you can use your disposable income to come up with an estimated payment. The IRS may either approve this amount or request a higher amount based on the review of the information you provided on Form 433.

What if I Can’t Afford to Make a Monthly Payment?

If even a minimum monthly payment is out of reach in your current financial situation, you have a few options when it comes to negotiating with the IRS. First, you can seek currently not collectible status (CNC), which requires a full review of your finances to determine that repaying your taxes would create undue hardship. If you qualify, collection actions will cease for one year but will be renewed if your financial situation changes for the positive.

Some taxpayers can qualify for an offer in compromise, in which the IRS settles the tax debt for less than the full amount you owe. This also requires full financial disclosure.

At Solvable, we can help you locate an experienced, highly rated back tax assistance firm to help you establish a payment plan with the IRS. Today is the day — take action to resolve your back taxes with guidance from our trusted professionals.

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Andrea Miller
Expert Contributor
Last Updated: