When You Can't Pay Your Taxes in Full: Installment Agreements With the IRS

Closeup photo of a letter from the IRS
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A monthly payment plan is often the easiest way to pay off any large debt, even a tax liability, and the Internal Revenue Service (IRS) offers various payment arrangements and installment agreements to help taxpayers eliminate their tax debts.

You can request an installment agreement online at the IRS website or by submitting Form 9465, but you must contact the IRS directly to add tax liabilities to an existing installment agreement. All agreements are subject to certain rules.

The IRS will usually charge interest and penalties for late tax payments even if you enter into an agreement.

Guaranteed Installment Agreements

The IRS will automatically agree to an installment plan if you owe $10,000 or less. You must meet all of the following criteria:

  • You (and your spouse if you're married) haven't filed a late return 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. 
  • You agree to file on time and to pay on time in future tax years.
  • You agree to pay the amount you owe within three years.
  • You don't have an open bankruptcy proceeding.

You might have to provide some information regarding your finances if you owe the IRS more than $10,000.

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 negatively impact your credit score.

Individual Payment Plans

You might qualify for an individual payment plan by going to IRS.gov/opa if you don't meet the criteria for a guaranteed installment agreement. 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, they can assume a short-term plan to pay in 120 days or less, or they can agree to a long-term installment agreement to pay off the tax debt 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.

What If You Can't Pay?

It's important to contact the IRS immediately if you're approved for an installment agreement and your financial situation turns out to be more dire than you thought or if you encounter a financial setback. Options are available to help you out. You might be able to reduce your monthly payment if you've agreed to pay more than the minimum each month.

You might have to provide proof of your financial situation, however.

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. You must owe over $10,000 to qualify and 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. 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 might have to provide pay stubs and bank statements to support your application and substantiate any equity you have in owned assets. The terms of the agreement will be reviewed every two years in case you can make additional payments.

The IRS might require that you sell assets to pay your tax debt rather than enter into a PPIA.

An Offer in Compromise

An offer in compromise might 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 what you owe. You'll typically need a tax professional to help represent you. An offer in compromise will only be discussed if you're unable to make any type of installment plan agreement.

It is best to seek the advice of a federally authorized tax professional, such as an enrolled agent, if you're unable to pay your tax debt. 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 financial situation and tax issues to help you decide which program will best suit your needs.

Article Sources

  1. IRS. "Instructions for Form 9465." Page 1. Accessed March 11, 2020.

  2. IRS. "Topic No. 202 Tax Payment Options." Accessed March 5, 2020.

  3. IRS. "Apply Online for a Payment Plan." Accessed March 5, 2020.

  4. IRS. "What If I Can't Pay My Installment Agreement?" Accessed March 5, 2020.

  5. IRS. "Part 5, Chapter 14, Section 2. Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED)." Accessed March 11, 2020.

  6. IRS. "Offer in Compromise." Accessed March 5, 2020.