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Published: July 9, 2020   |   Last Updated: July 29, 2022

Payment Plans

If you are unable to full pay your tax debt in full, 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, when repayment will take more than 180 days.

 

What do I need to know?

Prepare for the agreement

Before you request an installment agreement, you should know:

1.)  The IRS will not consider an installment agreement until you’ve filed all your tax returns.

2.)  Once you’ve entered into an agreement, you’ll have to file and pay all future taxes on time or your agreement may default.

3.)  If the IRS agrees to an installment agreement, it will still charge penalties and interest.

4.)  Depending on the type of agreement, and the amount of your income, you may be charged a fee to establish an installment agreement.

5.)  If the IRS approves an installment agreement, it will generally keep any tax refunds and apply them to your debt.

6.)  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.

7.)  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 Generally, an installment agreement request is pending until it is reviewed; and is established, or the request is withdrawn by you or rejected by the IRS.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.

8.)  If the IRS approves an installment agreement, you must make your agreed upon payments on time.

Consider other resources

Can you borrow from a financial institution or a family member to pay the balance? If so, it may cost you less money since the IRS charges you interest even though you’re on a payment plan. You may also avoid some penalties and associated interest, by paying the IRS sooner. Compare the costs for your situation.

 

Actions

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What should I do?

Review the tax debt to be sure you owe it:
If you don’t believe you owe the tax, now is the time to talk to the IRS about it. If you’ve received an IRS notice, start by calling the number on the notice to discuss the amount you owe.

Determine what type of Payment Plan may be best for your financial situation:

Short-Term Payment Plan
You can full pay your tax debt within 180 days.  You can request a Short-Term Payment Plan by phone, mail, in-person, or online.  There is no fee charged.

Long-term payment plans, also known as Installment Agreements
There are several different options available depending on how much you owe and what type of tax.  The following Installment Agreements options are available:

Guaranteed Installment Agreements

You have the right to an agreement without submitting a financial statement if:

  • The amount of tax you owe (not counting interest and penalties) is less than $10,000.
  • You (and your spouse, if you filed a joint tax return) have filed and paid all taxes due for the last five years.
  • Neither you (nor your spouse, if you filed jointly) have had an installment agreement with the IRS in the previous five years.
  • You can pay the full amount you owe within three years.
  • You agree to pay the liability before the period for collecting the tax expires.
  • You comply with the tax laws during the agreement.

Streamlined Installment Agreements

There are two types of Streamlined Installment Agreements, depending on how much you owe and for what type of tax. For both types, you must pay the debt in full within 72 months (six years), and within the time limit for the IRS to collect the tax, but you won’t need to submit a financial statement.

1.)  Assessed tax balance under $25,000 (include all assessed tax, penalty and interest in computing the balance due).

This is available to:

    • Individuals;
    • Businesses that are still operating and only owe Form 1120 income tax or Form 1065 late filing penalties; and
    • Businesses that have gone out of business that owe any type of tax.

2.) Assessed tax balance from $25,001 to $50,000 (include all assessed tax, penalty and interest in computing the balance due).

This is available to:

    •  Individuals; and
    • Out-of-business sole proprietors.

Note: To get this type of agreement where the balance due is $25,001-$50,000, you must pay through either a direct debit or payroll deduction agreement.

Partial Pay Agreements

In this situation, you must have some ability to pay toward your  tax debt but can’t pay in full within the remaining time the IRS has to collect. The IRS may allow you to make payments until the collection period expires.

You will need to provide financial information to have this type of agreement established.  In addition, your financial situation will be evaluated every 2-years thereafter until the collection period expires or the tax debt is full paid, whichever is earlier.

Contact the IRS at 800-829-1040 (TTY/TDD 800-829-4059) or the number on the notice to discuss this option. If you’re in this situation, you might also want to consider submitting an Offer in Compromise to settle your taxes instead of an installment agreement.

In-Business Trust Fund Express Agreement

An In-Business Trust Fund Express agreement may be available for businesses that owe up to $25,000. You must pay the debt in full in 24 months or before the collection period expires, whichever is earlier. You can also pay down the liability to $25,000 or less and then apply.

Routine Installment Agreements (all other Installment Agreements)

If you don’t meet criteria for guaranteed, streamlined, or in-business trust fund express installment agreements, you can still request an installment agreement from the IRS.

You can request a routine installment agreement by mail or by calling the IRS, but you cannot apply online.

Documentation: The IRS may ask you for supporting documents for your income, expenses, and other amounts you owe (For example: Home and car loan payments, other obligations.) The IRS  to determine allowable monthly expenses and arrive at the appropriate monthly payment. If you feel you should be allowed more than the standard amount, provide reasoning with your application.

The Six Year Rule: Generally, if you only owe individual income tax, and you do not qualify for a streamlined installment agreement, you may qualify for the Six (6) Year Rule. You’d need to provide financial information but all your expenses may be allowed (not only the IRS standard allowances). You must stay current with all filing and payment requirements, including projected penalties and interest on the tax debt, and fully pay the installment in six years (72 months) and within the collection statute – the time the IRS has to collect the amount you owe.

The One Year Rule: If you can’t pay your debt in full within six years, you may be given up to one year to modify or eliminate excessive necessary expenses. By modifying or eliminating these expenses, you may be able to pay the liability, plus accrued interest and penalties, within the six-year limit.

If none of these options seems to fit your circumstances, you can call the IRS and discuss your situation.


Fees

The initial fee for setting up an installment agreement varies depending on the payment method you choose. These fees are subject to change and are listed on the IRS Payment Plans page.

If you believe that you meet the requirements for low income taxpayer status, but the IRS did not identify you as a low-income taxpayer, please review Form 13844: Application for Reduced User Fee for Installment Agreements  for guidance. Applicants should submit the form to the IRS within 30 days from the date of their installment agreement acceptance letter to request the IRS to reconsider their status.

Internal Revenue Service
PO Box 219236, Stop 5050
Kansas City, MO 64121-9236

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How to apply?

Online

The simplest way to get an installment agreement is to use the IRS Online Payment Agreement program.  If you meet the criteria. Follow the instructions to see if you qualify. The system will give you an immediate answer. If you don’t qualify for the Online Payment Agreement program, follow the directions to learn available alternatives.

By mail

If you can’t or choose not to use the online system, you can complete the paper IRS Form 9465, Installment Agreement Request, and submit it with all required documents to the address in the instructions.

For a routine installment agreement, you also need to submit another form:

  • Individuals:  Form 433-F, Collection Information Statement
  • Business: Form 433-B, Collection Information Statement for Businesses

 By phone

If you prefer to apply by phone, call 800-829-1040 (individual) or 800-829-4933 (business), or the phone number on your bill or notice.


What if the IRS rejects my request for an installment agreement?

The IRS does reject requests for payment plans sometimes – if this happens to you, you have the right to appeal. You must request an appeal within 30 days of the rejection by submitting Form 9423, Collection Appeals Request. Generally, the IRS i will not take enforcement action while the installment agreement is pending and for an additional 30 days after rejection or termination, which gives you time to request an appeal.  In addition, the IRS will generally not take enforcement action while Appeals is considering the case.  For more information, see Publication 594, IRS Collection Process.

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How will this affect me?

If the IRS accepts your request for an agreement, be sure you follow the instructions and make your payments on time every month. Contact the IRS immediately if you can’t make a payment.

You need to know that even with an installment agreement, your future refunds will be applied to your tax debt until it is paid in full. This helps pay your taxes off as quickly as possible.

If you’re experiencing a hardship — For example: You need your refund to pay basic living expenses such as rent, utilities or food, you should contact the Taxpayer Advocate Service.

If you default by missing a payment(s), the installment agreement may be terminated, and the IRS may begin taking enforcement action. It’s important to select the agreement that meets your personal situation and allows you to make your payments every month and on time.

A common source of tax debt isn’t having enough money withheld. If this is happening to you, consider revising your IRS Form W-4, Employee’s Withholding Allowance Certificate, to avoid this problem in future years. If you’re self-employed, make your estimated payments throughout the year.

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Wait, I still need help.

The Taxpayer Advocate Service is an independent organization within the IRS that helps taxpayers and protects taxpayers’ rights. We can offer you help if your tax problem is causing a financial difficulty, you’ve tried and been unable to resolve your issue with the IRS, or you believe an IRS system, process, or procedure just isn’t working as it should. If you qualify for our assistance, which is always free, we will do everything possible to help you.

Visit www.taxpayeradvocate.irs.gov or call 1-877-777-4778.

Low Income Taxpayer Clinics (LITCs) are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, see the LITC page on the TAS website or Publication 4134, Low Income Taxpayer Clinic List.

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