IRS Installment Agreements
A monthly payment plan is often the easiest way to pay off any large debt, even a tax liability.
Also, the IRS will charge interest and penalties for late tax payments regardless of your reason for late payments. To request an installment agreement, you must submit Form 9465. To add tax liabilities to an existing installment agreement you must contact the IRS directly.
Guaranteed Installment Agreements
The IRS will automatically agree to an installment plan if you owe $10,000 or less. You must also meet all of the following criteria:
- You have not filed late or paid late in the previous five years. This does not include extensions of time to file. It means missing a tax deadline without taking any action.
- All your tax returns have been filed.
- You agree to file on time and to pay on time in future tax years.
- You agree to allow the IRS to take any refunds you may be given in the future.
The minimum monthly payment the IRS will accept is the total of your balance due, including penalties and interest, divided by 36 months. If you want to pay more than this to get rid of the debt in less than 36 months, you certainly can.
The main benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien or levy against you for outstanding taxes due. Tax liens, like mortgage liens, give the IRS the right to certain assets if you don't pay. A tax levy gives the IRS the right to seize certain assets. Both liens and levies can be reported to the credit bureaus and may negatively impact your credit score.
Individual Payment Plans
If you do not meet the criteria for a guaranteed installment agreement, you might qualify for an individual payment plan by going to IRS.gov/opa. Taxpayers can qualify for this type of agreement when the balance owed to the IRS is $50,000 or less.
According to the IRS, individuals can make full payment, or they can assume a short-term payment plan (paying in 120 days or less) or a long-term payment plan (installment agreement) (paying in more than 120 days):
- You can apply online for the long-term payment plan if you owe $50,000 or less in combined tax, penalties and interest, and have filed all required returns.
- You can apply for the short-term payment plan if you owe less than $100,000 in combined tax, penalties, and interest.
Partial Payment Installment Agreements (PPIAs)
A partial payment installment agreement (PPIA) allows you to make a monthly payment to the IRS that is based on what you can afford after accounting for your essential living expenses. To qualify, you must owe over $10,000, have no outstanding returns, have limited assets, and no bankruptcies. To request a PPIA, you must file Form 433 with Form 9465.
You can calculate your payment based on your disposable income using Form 433. There is a filing fee of $225 ($107 if you elect the direct debit option). A partial payment plan can be set up for a longer repayment term, and the IRS might file a federal tax lien to protect its interests. You may have to provide pay stubs and bank statements to support your application and substantiate any equity you have in owned assets. The IRS might also require you to sell those assets to pay your tax debt rather than enter into a PPIA.
The terms of the agreement will be reviewed every two years in case you can make additional payments.
It is best to seek the advice of a federally authorized tax professional, such as an enrolled agent, if you are unable to pay your tax debt. A professional can talk to the IRS on your behalf and can help you manage the process so that it is not so overwhelming. A professional can also help you analyze your current financial situation and tax issues to help you decide which program will best suit your needs.
Offer in Compromise
An offer in compromise can also be a possibility after all other options have been exhausted. An offer in compromise involves negotiating with the IRS to pay a lump sum for less than you owe. You will typically need a tax professional to help represent you for this scenario. An offer in compromise will only be discussed if you are unable to make any type of installment plan agreement.