IRS Payment Plan (Installment Agreement) – An Authoritative Guide

irs payment plan

IRS Payment Plan (Installment Agreement) – Everything You Need to Know

Do you still have an outstanding balance with your owed taxes in the IRS? Do you also have some struggles with your finances to pay your Federal taxes in full? Don’t worry! You are not alone. In fact, there are many taxpayers across the country who have the same problems as yours. Besides that, many people find out that the total amount of their owed taxes is more than what they’ve usually expected every tax year. That will be undoubtedly stressful and very disappointing.

Because of that, the U.S. government has passed legislation to allow those who cannot pay their delinquent Federal taxes in full to take advantage of the installment agreement they qualify for. This installment agreement is statutorily defined under the Internal Revenue Code Section 6159. So if you want to check further details on that, here’s everything you need to know about the IRS installment payment plan.

What is an IRS Payment Plan?

Those taxpayers who can’t afford to settle their owed taxes for a one-time payment may be eligible for a payment installment plan provided by the IRS. This installment plan will allow any taxpayer who has delinquent or unpaid taxes to process their payments over time while giving them the chance to avoid any levies, garnishments, or any other possible collection actions of the agency. It is a particular agreement between you and the IRS to pay your tax balance within a specific extended period of time. 

Moreover, even if you still owe a large amount of money for your unsettled taxes, including the interest and monetary penalties for processing it late, the installment plan will give you immense help to make your payments more affordable. In fact, this is one of the big reasons why most taxpayers want to take advantage of this plan offered by the IRS because they can pay their taxes with the amount they can instead of paying it in full. Also, the monthly payment for this installment plan will depend on the aggregate amount of the unpaid taxes you owe and how much money you can pay every month based on your existing income or assets.

Remember that the IRS can deny or revoke your passport for unpaid taxes. Also remember that filing bankruptcy may clear your tax debt.

What are the Different Kinds of IRS Installment Plans?

Taxpayers will qualify for the short-term installment plans if they owe less than $100,000, including the delinquent taxes, penalties, and interest. On the other hand, taxpayers will also qualify for the long-term payment plans if they owe $50,000 or less, including the delinquent taxes, penalties, and interest, and they are also done filing all required tax returns. With that, here are the different installment plans that the IRS offers. 

Installment Plans

Qualifications/Requirements

Guaranteed Installment Agreement

  • If you have delinquent taxes of $10,000 or below
  • Installment payments within 3 years
  • With no specific payment amount

Streamlined Installment Agreement

  • If you have unpaid taxes between $10,000 and $25,000
  • Installment payments within 72 months or 6 years
  • With a minimum monthly payment: total balance of your owed taxes divided by the number of months of the installment plan

Non-Streamlined Installment Agreement

  • If you owe delinquent taxes more than $50,000
  • Requires you to complete Form 433-F
  • Provide these following details: 
  • All existing properties and assets 
  • Amounts owed to you or by you
  • Employment wages and information
  • Monthly expenses
  • Other sources of income

Partial Payment Installment Agreement

  • If you can’t pay your delinquent tax balance within 72 months or 6 years
  • Allows you to process your monthly payment based on your financial capability
  • You have to present proof and documents of your financial struggles that you can’t pay your owed taxes in full
  • The IRS will review your application for this installment plan and may require you to dispose of some of your properties to pay the big portion of your delinquent tax obligations 

Expanded Installment Agreement

  • It’s a pilot program in 2017
  • Intended for taxpayers who have a tax balance between $50,000 and $100,000 
  • Payment plan within 84 months or 7 years in total
  • Taxpayers need to agree with direct debit
  • Taxpayers have a Notice of Federal Tax Lien filed at their locality

Balance of owed taxes between $25,000 and $50,000

  • Requires additional taxpayer’s information
  • Installment payments within 72 months or 6 years
  • With a minimum payment: total balance of your unpaid taxes divided by the number of months of the installment plan

Balance of owed taxes over $50,000

  • Requires a thorough review of your finances
  • Needs detailed information of your assets, investments, bank accounts, and sources of income
  • May require you to dispose of some of your meaningful assets to lessen your delinquent taxes 
  • Minimum payment depends on the agreement between you and the IRS
irs installment agreement

Fee

There will be no payment for setting up an installment plan for those taxpayers who can process their payments for their owed taxes within 120 days. However, if they can’t do so, they have to set up a direct debit payment plan online. It’ll cost them $31 only, but it’ll become $107 if they want to set it up via phone, mail, or even asking for assistance in doing it in person. Besides that, if the taxpayers don’t want to use direct debit, setting up their installment plan will cost them even more expensive, which is $149. Then, if they also want to do it via mail, phone, or in-person, it’ll then become $225. 

How to Determine if You Qualify for Low-Income Tax Status

For those taxpayers who believe that they meet the set of requirements for low-income taxpayer status, but the Internal Revenue Service doesn’t identify them as one, then they need to review and check the Form 13844 or the form for the application for a reduced user fee for the installment payment agreement for complete guidelines. 

Moreover, if you are a taxpayer with an adjustment in your gross income that has been determined from the available information in the latest return you processed, and you are at or below 250% of the poverty level in the country who has a long-term installment plan on or after the 10th of April in 2018, your user fees will be reimbursed or waived. So if you have a low income, you won’t pay for this fee if you only agree to make electronic debit payments by getting into DDIA or Direct Debit Installment Agreement.   

However, if you are a taxpayer with low income and you can’t make debit payments electronically, you can still receive the reimbursement after you’ve completed the application and get your installment plan approved by the IRS. Besides that, upon your application, the Online Payment Agreement tool will reflect any fee applicable to you if the system that the IRS uses will identify you as a low-income taxpayer. 

Besides that, this particular fee reduction or reimbursement doesn’t apply to partnerships or corporations. It only applies to an individual taxpayer who has existing delinquent taxes to the IRS. So if the agency approves your application for low-income taxpayer status for the installment payment plan, your use fee may be reduced, reimbursed, or waived. 

Eligibility

For you to know you’re eligible for the installment plan, you don’t necessarily have to make a phone call to the IRS. In fact, you can simply do it online and complete your application within a few minutes with these conditions. You’re applying for the short-term installment agreement, and you have the total unsettled taxes of less than $100,000, including the interest and penalties. Or, you want to apply for a long-term installment plan, and your aggregate delinquent taxes is $50,000 or less, including the interest and all applicable monetary penalties. 

Moreover, upon application, you have to confirm your identity by providing all required information from the IRS. It includes your complete name that exactly appears on the tax return you filed recently. You also have to provide your active email address, date of birth, the total balance of your owed taxes, filing status, and your individual tax ID number or your Social Security Number. 

Besides that, you also need to confirm the address that you provided in the latest tax return you filed. Then, don’t forget to include, as well, your mobile number under your name, your financial account number, or the activation code sent to you by mail. So if you’re able to provide all of this information, you may be eligible for the installment plan for your owed taxes. You just need to wait for approval from the IRS. 

What are Your Options if You are Not Eligible?

After sending your application and you find out that you’re not eligible for the installment plan from the IRS, you may still have an option to pay your delinquent tax balance on an installment basis. You only have to fill out Form 9465 or the Installment Agreement Request form. Then, check and follow all of the instructions stipulated on the said form. You may also be required to complete the Collection Information Statement or Form 433-F. After that, you have to send all of the forms you’ve completed to the IRS. You might also request an IRS Offer in Compromise (OIC) to settle your tax debt.

How to Choose a Payment? 

After processing your application for the installment plan to pay your owed taxes to the IRS and getting its approval, you can now start making a series of payments on a monthly basis over time. The agency will give you various payment options you can choose from. You can do it through a direct debit from your bank or savings account, payroll deduction from the company you’re currently working for, and payments by Electronic Federal Tax Payment System or EFTPS. 

Besides that, you can also choose the payment option of making use of your credit card to pay online or over the phone. If you can issue a check using your checking account or process a money order, you can also use that as a way of processing your payments. But if paying cash works best for you, you can visit any retail partner near your area to process the payments yourself. As you can see, you have many options for the payments because the IRS wants to provide you with the easiest way to pay your delinquent taxes. So you can choose any of these and include one in your application for the installment plan that works best for you in the IRS. 

How to Revise an Existing Plan?

If you’re not processing your payments via direct debit, you can easily make changes with your existing installment plan on an online tool provided by the IRS. You can change the payment amount that you process every month as well as the due date you’ve initially set up. Besides that, if you also decide to make automatic withdrawals from your bank account, you can conveniently do that using the online tool of the IRS. 

However, if your installment plan is already set up for automatic withdrawal and you decide to update or remove the card, you have to get in touch with the IRS for further assistance. Also, if your installment plan goes into default, there may be a particular fee for reinstatement.

What are Your Options if You are Not Able to Revise Your Existing Plan?

If you can’t revise or make changes to your existing installment plan online to pay your delinquent tax balance, you can give the IRS a phone call. For individual taxpayers, they can reach out to the IRS via the phone number 800-829-4933. But for those business owners can get in touch with the agency using the phone number 800-829-4933. 

Besides that, if you aren’t able to make updates or changes on your installment plan online and you received a notice of default or an urgent notice about your delinquent tax balance, all you need to do is follow all of the instructions stated on the letter and give the IRS a phone call immediately. They will be able to assist you with your concern further and give you more details. 

How to Set Up Your IRS Payment Plan?

There are various available ways where you can set up your installment plan for your delinquent taxes. You can do it online, over the phone, or you can also do that by filling out the forms provided by the IRS. In most cases, you’ll be given the freedom to choose the amount you can afford to pay every month. But the agency will encourage you to pay as much as you can so that the penalties and interest will be reduced. 

Moreover, you can propose a particular payment plan for taxes that you can keep. You have to do this proposition when you are able to submit a completed Form 433-A to the IRS. Then, offer any amount you can pay upfront to at least lessen your remaining tax balance as well the possible penalties and interest. Remember not to promise the IRS any installment plan that you can’t keep for the sake of getting your proposal approved. It’s because it may be difficult for you to renegotiate it and make changes to it in the future. 

After that, process your first payment when you propose your installment plan and start making a monthly payment even if the Internal Revenue Service hasn’t approved it yet. Making these voluntary payments will make you appear committed to your proposed installment plan, and the agency will consequently have good faith in what you’ve promised to them. 

Are There Other Ways to Pay Your Taxes Over Time?

The installment payment plans in the IRS are good options if you are able to settle your owed taxes within 72 months or a total of 6 years. But any of these payment plans won’t help you reduce the delinquent tax balance you owed to the agency. However, you can choose a few alternatives to at least lessen the total amount of your tax debt. 

If you pay your tax obligations in full and it will consequently result in a substantial financial hardship in the future, you may apply and qualify for the reduction of the total tax bill via a particular offer in compromise. To do this, you have to determine the amount you can afford to pay with the use of an IRS formula. This particular formula will consider the income you’re regularly earning and the assets you currently have. After that, you have to submit your offer to the IRS. So once it gets approved, you’ll be given up to 24 months or 2 years to pay the reduced tax balance. For more information about it, you can visit the Internal Revenue Service official website. 

Moreover, another alternative option you can choose to reduce your total owed tax obligations is to file for bankruptcy.  However, opting for this option will make you go through a long and complicated process. So you can consult a tax professional near your area to get the assistance and help you need to proceed with this and to see if this is a good option for you. 

how to set up payment plan with irs

FAQs

Can you have two IRS payment plans?

Unfortunately, the answer is no. The IRS will only allow you to have one installment agreement that you have to keep until you are able to pay your balance in full. That includes all years when you still have delinquent tax obligations. Besides that, your new unpaid taxes will also be included in your existing installment tax payment plan. So if that happens, you have to contact the IRS to make updates on your plan and add your new tax debt to it. 

Have IRS payment plans been suspended?

The answer is no. As a matter of fact, the Internal Service Revenue keeps on reminding the taxpayers who can’t pay their owed Federal taxes in full that they can process it by applying for an installment plan that best suits them. So if you’re one of them, you can visit the official website of the IRS for further details and instructions. 

IRS payment plans for over 100k

There was a pilot program that the IRS conducted in 2017. It was for individual taxpayers who had a delinquent tax balance between $50,000 and $100,000. It’s called the Expanded Installment Agreement or EIA. This particular installment plan allowed those who had a qualifying amount to take advantage of the IRS tax payment plan within 84 months or a total of 7 years time period. Besides that, qualifying for the EIA will also mean that a particular taxpayer receives the Notice of Federal Tax Lien that has been completely filed at their locality.

What is the current interest rate on IRS payment plans?

The IRS offers installment plans for those who have delinquent tax obligations to pay their balance into a smaller monthly payment. Doing so, the agency charges them 0.5-5% as the interest rate for the monthly penalty. It will also depend if you’ve already filed your tax returns or not. So it’ll be best to start applying for an installment plan that works best for you and begin processing your payments as soon as possible. Also, keep in mind that the 0.25% interest rate for your installment plan will be much better than ignoring your delinquent Federal taxes. 

Is the IRS suspending installment payments?

Some taxpayers who couldn’t keep with the terms they agreed with the IRS on their installment plan had the choice to suspend their payments until the 15th of July in 2020. After that, their payments should continue for the agreement to remain effective. Besides that, those who want to update or revise their installment payments plans can do it online or give the IRS a phone call for further assistance. 

Conclusion

Those taxpayers who have overdue tax bills don’t have to worry about settling their tax debts nowadays. It’s because the Internal Revenue Service of the country has provided various payment options to help them out with their Federal tax issues. As discussed above, the agency is willing to provide a particular installment plan that works best for them. So if you are one of those taxpayers with the same problems in their taxes, you can visit the official website of the IRS or consult a tax professional near your area for any legal advice and assistance you need with your overdue tax bills.

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