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Guide

IRS Payment Plan

It can be an overwhelming feeling to learn that you owe taxes to Uncle Sam. It's even more distressing to realize that you can't afford to make the payment. If you find yourself in this situation, make sure that you have submitted the appropriate paperwork to the Internal Revenue Service by the April 17th deadline. Otherwise, the IRS can charge you a 5 percent penalty fee for each month that you fail to pay, up to 25 percent. Your outstanding balance will also be subject to interest, which the IRS adjusts each quarter.

Nobody likes owing the government, but there are options available to you.

Summary

A short-term IRS payment plan is an agreement to have an outstanding tax balance paid in 120 days or less.

This option is only available to individual taxpayers who owe $100,000 or less in combined tax, penalties, and interest.

What is an IRS Payment Plan?

If you plan to repay a large amount of your outstanding balance using a credit card, this can cause your credit rating to take a huge hit, especially if your credit card carries a high interest rate. If this is the case for you, it makes more sense to make an arrangement with the IRS to repay the entire balance.

You can make an agreement directly with the IRS to pay your outstanding federal tax bill. This agreement is what's known as an IRS payment plan, and it allows you to repay your remaining balance over a period of time. While credit card companies will report debtors to the credit bureau, the IRS will not--- as long as taxpayers don't have liens or other serious debt collection issues. 

There are two types of IRS payment plans:

  • Short-term Payment Plan

    A short-term IRS payment plan is an agreement to have an outstanding tax balance paid in 120 days or less. Repayment will include any penalties and interest that may accrue until the total balance has been paid in full. This option is only available to individual taxpayers who owe $100,000 or less in combined tax, penalties, and interest.

    There are no setup fees to apply online, by phone, mail, or in-person. You have the option to repay via check, money order, debit/credit card, or automatic withdrawals from your checking account.

    Even if you can't afford to pay your entire tax bill at once, you should still attempt to make partial payments so that you can reduce the amount of penalty fees and interest you'll have to pay to the IRS.

  • Long-term Payment Plan

    Also known as an installment plan, a long-term IRS payment plan is an agreement to have an outstanding tax balance paid in more than 120 days. This plan requires monthly payments of the outstanding balance, plus any accrued penalties and interest until the total amount owed has been repaid in full. You are only eligible for a long-term repayment plan if your tax bill is $50,000 or less in combined tax, penalties, and interest.

    If you opt to make your payments via automatic withdrawals, there is a $31 fee to apply online, and a $107 fee to apply by phone, mail, or in-person (setup fees are waived for low-income applicants). 

    To request a long-term payment agreement, you will need to submit IRS Form 9465 Installment Agreement Request, at the time you file your tax return. Once approved, the IRS will set the payment plan up for you, which can last up to six years. To ensure you have a realistic plan for repayment, you should divide the total balance you owe by six and agree to pay that amount annually over the six-year period,

    If you don't believe that you can repay the full balance in six years, it's best to reach out to a local tax attorney or CPA for assistance with negotiating a repayment plan with the IRS. 


IRS PAYMENT PLAN

How do I apply?

Find out if you qualify for an IRS Payment Plan

How to Reduce or Eliminate Your Tax Burden

  • Offer in Compromise:

     The truth is, the IRS rarely forgives tax debt. But they will occasionally make exceptions for people who have incurred catastrophic healthcare expenses, or who have lost their jobs and have little chance of generating income at any point in the foreseeable future. It doesn't happen often, but if you believe you may qualify, you can complete a Form 656 for an "offer in compromise" to request a settlement of your tax debt liability that is less than what you currently owe. The plan is part of the IRS Fresh Start program created by the IRS in 2011. To qualify, taxpayers will need to file all past tax returns and not have entered into any other installment agreement plans in the past five years. You will also be unable to participate if you are filing for personal bankruptcy. 

  • Not Currently Collectible:

    This is a program where the IRS voluntarily agrees not to collect on your tax debt for approximately one year. The agency will declare the taxpayer as "currently not collectible" after they receive documentation that shows the taxpayer is unable to pay the debt. The collection appeal lets you explain how you plan to manage the outstanding debt without fear of an IRS levy, lien, seizure of property, or a denial or termination of your installment agreement.

  • Statute of Limitations:

    The IRS has 10 years starting from the date of an assessment to collect the total amount of tax, penalties, and interest owed on a debt. An expert tax resolution specialist can advise you on whether or not it's worth waiting out the 10-year expiration date. This can also be a useful strategy for stopping an IRS levy, lien, seizure of property, or a denial or termination of your installment agreement.

  • Ask for leniency:

    If you can prove that paying your tax debt would cause you a tremendous hardship, you may be able to get a timeline extension on your debt repayment. The IRS handles such requests on a case by case basis. Read the Application for Extension of Time for Payment of Tax Due to Undue Hardship to see whether or not you qualify.

    No matter how much tax debt you owe, there are actions you can take to reduce the amount of your unpaid taxes. Depending on how much you owe, you may be able to manage repayment negotiations yourself, or you might need to contact a tax professional for further assistance.  Whatever you decide to do, be realistic about your situation and don't ignore the fact that you need to put a plan in place. 


IRS PAYMENT PLAN

How do I apply?

Find out if you qualify for an IRS Payment Plan

Frequently Asked Questions

  • Does Medical Debt Qualify Me for an IRS Payment Plan?

    Believe it or not, the IRS knows the struggles each consumer experiences when they attempt to navigate a vastly complex and costly medical system.

  • Can Back Taxes Keep Me From Getting a Mortgage?

    The IRS can put a levy on your property in order to collect what's due to the federal government. This means that they can levy a new home purchase, and that's all the more reason to keep up your payments as they are due.

  • Can a Tax Lien Hurt Your Credit Score?

    Since the introduction of the IRS Fresh Start program in 2017, the IRS only files a Notice of Federal Tax Lien for tax payers with debts over $10,000. This is a significant change from the initial $5,000 threshold.

  • Can the IRS Freeze My Robinhood Account?

    It is possible that the IRS can seize or freeze your investing accounts due to back taxes from other income. The IRS tracks all income to collect income tax, including stocks.

  • Am I Financially Over My Ex?

    There are a lot of issues you need to iron out when remarrying after an ex-spouse. With children, assets, finances, and the rest in the picture, you have a longer and probably complicated history and, as such, need to make important decisions regarding the same.