Your Guide to IRS Payment Plans

Eligibility and Fees for IRS Payment Plans

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Discovering that you owe taxes and can’t afford to pay them all at once is undeniably stressful. But if you’re in this situation, don’t panic. An IRS payment plan lets you pay back the taxes you owe over time.

What Is an IRS Payment Plan?

An IRS payment plan is an agreement that gives you an extended period of time to pay off the taxes you owe. By setting up a plan, you’ll avoid collection actions, like tax liens and tax levies

A 0.5% monthly penalty, plus interest (set at 3% annually for the first quarter of 2021 for individuals) will accrue until you’ve paid off your balance. By comparison, the average credit card annual percentage rate (APR) on accounts assessing interest is currently 20.28%, according to our most recent rate report. That means an IRS installment plan is typically cheaper than paying taxes with a credit card if you can’t pay the monthly balance in full.

While you’re enrolled in a payment plan, your future tax refunds will be applied to your balance until you no longer owe. Because interest and fees are accruing, you should pay as much as you can afford to upfront, and apply for a payment plan for the remaining balance. 

If you can afford to pay off your balance in 180 days or fewer, you can set up a short-term payment plan. People who owe less than $100,000 can apply for a short-term plan online at IRS.gov/OPA.

The payback time frame was previously 120 days, but the IRS extended it by 60 days to help taxpayers struggling due to COVID-19. 

Otherwise, you’ll need to apply for a long-term payment plan and make monthly installment payments. The maximum repayment period is 72 months.

Who Is Eligible for an IRS Payment Plan?

You’re guaranteed to qualify for an IRS installment agreement if you owe less than $10,000 and you and your spouse: 

  • Have filed tax returns on time for the past five years.
  • You agree to pay in full within three years. 
  • You can’t afford to pay the taxes you owe in full. 
  • You aren’t in bankruptcy proceedings.

If your tax bill is higher or you need more than three years to pay, chances are you can still qualify by applying online. Generally, individuals who owe less than $50,000 and businesses that owe less than $25,000 can apply for a payment plan online as long as they’ve filed all their tax returns. However, you may be able to apply online if you owe even more.

The IRS relaxed the rules due to COVID-19 to allow some taxpayers who owe up to $250,000 to apply online without submitting additional information, if their proposed monthly payment is sufficient. 

An agreement can typically be set up in a few minutes, according to the IRS website. If you’re not eligible to set up a plan online, you can apply by submitting Form 9465 or by calling the IRS.

If your balance owed is $25,000 or higher, the IRS will require you to set up automatic payments by direct debit from your checking account. The same rule applies to businesses that owe $10,000 or more.

What Are the Fees for an IRS Payment Plan?

The following fees will apply if you set up an online IRS payment plan, also known as a streamlined plan. Note that if the IRS considers you a low-income taxpayer, meaning your income for the tax year is at or below 250% of the federal poverty level for your state, some fees can be waived.

 Type of Plan  Fees  Who Qualifies
Short-term plan (180 days or less) No setup fee

Interest and late charges 
Individuals who owe less than $100,000 in total
Long-term payment plan (180 days or more) with direct debit payments from your bank account $31 setup fee if you apply online

$107 setup fee if you apply by phone, mail, or in person

Interest and late charges
Individuals who owe $50,000 or less

Businesses that owe $25,000 or less

Those who owe up to $250,000 can now qualify, in some cases
Long-term payment plan (180 days or more) with another payment method $149 setup fee if you apply online

$225 setup fee if you apply by phone, mail, or in person

Interest and late charges
Individuals who owe $25,000 or less

Businesses that owe $10,000 or less
Source: IRS.gov

Should I Use a Tax Settlement Firm?

When you owe taxes, your best option typically will be to work directly with the IRS rather than hiring a tax settlement company. Although plenty of firms claim they can reduce your tax debt or stop wage garnishment, the Federal Trade Commission (FTC) warns that most taxpayers won’t qualify for the programs they advertise. The FTC has received numerous complaints from taxpayers who say that these firms not only failed to negotiate a settlement but also didn’t submit the necessary paperwork to the IRS and charged them unauthorized fees.

If you want third-party assistance, only a certified public accountant (CPA), an enrolled agent, or an attorney can represent you before the IRS. The FTC recommends carefully reviewing a tax relief company’s fee structure and cancellation policies before hiring one to represent you. For unresolved issues with the IRS, a better solution is often to contact the Taxpayer Advocate Service, an independent division of the IRS.

Alternatives to an IRS Payment Plan

If you’re unable to pay any of your tax debt, you can request to delay collection. If the IRS approves your request, your tax debt won’t go away, but your account will be reported as currently not collectible. Interest and late payments will continue to accrue.

Use the IRS Offer in Compromise Pre-Qualifier screening tool to determine whether an offer in compromise could be an option.

You may also be eligible for an offer in compromise, or OIC, where the IRS agrees to settle your debt for a reduced amount. This isn’t an option if you’re currently in bankruptcy.

Key Takeaways

  • An IRS payment plan lets you spread out the bill when you can’t afford your tax debt.
  • You can set up a short-term or long-term plan, depending on whether you can afford to pay the IRS within 180 days.
  • Penalties and interest will continue to accrue if you set up an IRS payment plan.
  • Most taxpayers won’t qualify for the programs that tax relief companies advertise.