How To Setup an IRS Payment Plan

The IRS allows you to pay over time

Man signing tax form, detail
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It happens. Something unexpected occurs toward the end of the year to affect your tax situation, or maybe you made a mistake when you filled out your W-4 for your new employer. Now it's tax time and you've just completed your return...and you're not getting a refund. You owe the IRS. 

The Internal Revenue Service would much rather that you pay them over time than not pay them at all and force them to take collection measures, so it offers a variety of payment options.

Setting up a payment plan with the IRS is fairly easy. Either you or your tax professional can arrange for an installment agreement to pay your tax debt in smaller, more manageable bites.  

Setting up a Payment Plan 

First, figure out how much you owe in unpaid taxes. Contact the IRS or get out copies of your tax returns to verify the amount. The total will include your original tax due, plus penalties and interest.

Now fill out Form 9465, the Installment Agreement Request. You can use the Online Payment Agreement Application on the IRS website if your tax debt is $50,000 or less, including interest and penalties. Otherwise, you can download and complete the paper form from the website and mail it in along with IRS Form 433-F, the Collection Information Statement. It may not be necessary to file Form 433-F in addition to Form 9465 if you owe $25,000 or less. 

The IRS will typically accept your installment agreement without fuss if you meet certain criteria: the total tax you owe does not exceed $10,000 and the monthly payments you've proposed will pay your tax debt in full, including interest and penalties, within three years.

 

Decide what day of the month you want to make your payments. You must make your payment by the same day each month. You can choose any day you want between the 1st and 28th. 

Choose your monthly payment amount—yes, you get to decide this within certain perimeters. If you want the IRS to automatically accept your installment agreement and you owe less than $10,000, you must propose a monthly payment amount that will pay the debt off within three years, including penalties and interest.

 You must pay at least this amount each month, although you can always pay more.

The IRS will respond to your request in about 30 days.

It's Not Free 

The IRS charges a user fee to set up a payment plan. As of January 1, 2017, it's $107 for direct debit installment agreements, $225 for new installment agreements without direct debit, or $89 for restructuring or for reinstating a defaulted installment agreement. Low income taxpayers are eligible for special, lower rates. 

Some Tips

You can also request an installment agreement over the phone. Simply call the IRS at 1-800-829-1040. They'll send you some paperwork to fill out.

Ask a tax professional to help you set up a payment plan if you want to negotiate a lower monthly payment that fits more easily into your budget. You might also need help from a professional if you don't meet the criteria for automatic acceptance of an installment agreement.

The IRS will not approve your installment agreement if you have not yet filed all your tax returns, so you'll have to get current before requesting a monthly payment plan.

If it turns out that you're due a refund in future years, you won't receive it if you're currently paying off a tax debt under an installment agreement with the IRS.

Your refund will be applied to your installment agreement balance. 

Don't Miss a Payment!

If you're paying by check or money order each month, mail your monthly payment to the IRS about seven to 10 days before the due date you've set up to make sure that the IRS receives it on time. The easiest and safest payment method is IRS Direct Pay, available online. Just log in with your identifying information, select "installment agreement" from the drop down menu, and enter your payment along with your bank account information. You'll receive a confirmation number immediately when your transaction is complete. 

If you know you're not going to be able to make a payment because of unforeseen difficulties, contact the IRS as soon as possible to avoid possible collection actions. The IRS will generally work with you.