All About IRS Installment Agreements
Choose the right installment agreement to pay off your federal tax debt
A monthly payment plan is generally the easiest way to pay off any large debt, even a tax liability, and, yes, you can indeed make payment arrangements with the Internal Revenue Service.
The IRS just wants its money, so it makes it relatively easy for you to pay off any taxes you might owe. Four different types of payment plans are available subject to certain rules, and interest and other fees typically apply.
Guaranteed Installment Agreements
The IRS will automatically agree to an installment plan if you owe $10,000 or less as of 2017. You must also meet all of the following criteria:
- You haven't 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'll pay off your balance in 36 months or less.
- You've had no other installment agreements in the past five years.
- You agree to file on time and to pay on time in future tax years.
The minimum monthly payment the IRS will accept is the total of your balance due, including penalties and interest, divided by 36 months. But 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 won't file a federal tax lien against you for outstanding taxes due. Tax liens are reported to the credit bureaus and they'll negatively impact your credit score. If you ever attempt to sell the property that's subject to the lien, the IRS gets paid first. Of course, if you enter into a payment plan then default, it's entirely possible and even probable that the government will file a tax lien against you, depending on the size of your debt.
The IRS won't ask you to fill out the financial statement, Form 433-F, in an effort to analyze your current financial situation. As said, this type of agreement is automatically accepted if you meet the terms.
Streamlined Installment Agreements
If you don't meet the criteria for a guaranteed installment agreement, you might qualify for a streamlined installment agreement instead. Taxpayers can qualify for this type of agreement when the balance owed to the IRS is $50,000 or less as of 2017. The taxpayer must agree to pay off the balance in 72 months or less.
The streamlined installment agreement is part of the IRS "Fresh Start Program" that was designed to help taxpayers who owe money. Before Fresh Start, the IRS would approve streamlined agreements only if the balance owed was $25,000 or less and the taxpayer agreed to pay it in full within 60 months.
As with all other installment agreements, the IRS requires that you file all your tax returns first if any are late, and you must agree to file your tax returns on time and pay your taxes on time in the future.
Like the guaranteed installment agreement, the main benefit of a streamlined installment agreement is that the IRS will not file a federal tax lien in an attempt to collect from you. Nor will the IRS ask you to complete financial statement Form 433-F so it can analyze your current financial situation.
Partial Payment Installment Agreements (PPIAs)
If the minimum payments for either the guaranteed or streamlined installment agreement plans just don't fit into your budget, you might be better off considering a partial payment installment agreement. This is a type of payment plan where the monthly payment is based on what you can actually afford after taking into consideration your essential living expenses.
Unlike guaranteed or streamlined agreements, a partial payment plan can be set up to cover a longer repayment term and the IRS might file a federal tax lien to protect its interests in collecting the debt. The IRS will ask you to fill out Form 433-F, the financial statement, to report your average income and living expenses for the past three months. You'll also have to provide paystubs and bank statements as supporting documentation. You'll also have to substantiate any equity you have in owned assets.
In some cases, the IRS might require that you sell those assets to pay your tax debt rather than enter into a PPIA.
The IRS reevaluates the terms of partial installment agreements every two years to see if your financial fortunes have changed and you might be able to pay more.
"Non-Streamlined" Installment Agreements
You'll have to negotiate your own installment agreement with the IRS if the balance you owe is over $50,000, and you might need the help of a tax professional for this. A non-streamlined agreement is also appropriate if you need a repayment term longer than five years or if you don't meet any of the other criteria for a streamlined or guaranteed installment plan.
Such an agreement is negotiated directly with an IRS agent and is then routed to a manager at the IRS for review and approval. The IRS will likely file a federal tax lien if they haven't already. This type of agreement is often referred to as "non-streamlined" because it falls outside the IRS' guidelines for automatic approval. The IRS will ask that you provide Form 433-F so it can analyze what you can afford to pay each month toward your balance.
The IRS will likely ask that you attempt to sell assets, take out a bank loan, or get a home equity loan so you can pay your tax debt without entering into this type of an installment agreement. Seek the advice of a federally authorized tax professional, such as an enrolled agent, if you're unable to pay your tax debt in any other way. A professional can talk to the IRS on your behalf and can help you manage the process so it's 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.
IRS Resources You Might Need
- Form 9465: The form used to request an installment agreement
- Online Payment Agreement: An application for submitting your installment agreement request online directly on the IRS.gov website
- Form 433-F: The financial statement, also called a Collection Information Statement, used by the IRS to analyze a taxpayer's income, living expenses, and value of assets.