If you have a large tax bill and do not have the resources to pay it all at once, the Internal Revenue Service may allow you to make a series of smaller payments under an installment agreement. Most IRS installment agreements require monthly payments and, so long as you are up-to-date on your payments, the IRS will usually stop trying to collect by seizing your property or garnishing your wages while you are paying off your debt.
What is a Tax Installment Agreement?
A tax installment agreement is when a taxpayer enters into a written agreement with the IRS to make monthly payments to satisfy a personal tax debt. An IRS payment plan can run for as long as 72 months and usually requires you to pay off your entire tax debt over the course of the plan.
While an installment agreement can stop collection activities, the IRS can continue to charge interest as well as a monthly late payment penalty until you have paid your balance in full.
Installment Agreement Types
The IRS has short- and long-term payment plans. If you agree to a short-term plan with the IRS, you must pay the total amount owed in 180 days or less by direct deposit. However, most installment agreements are long-term payment plans that run for longer than 180 days and can run for as long as 10 years.
The IRS offers taxpayers several types of long-term installment agreements, including streamlined, non-streamlined, and partial payment installment agreements. The IRS also provides automatic “guaranteed” 36-month installment agreements if you owe less than $10,000.
If you owe $10,000 or more, the type of installment agreement that is best for you will depend on how much you owe and your ability to make the necessary payments over the course of the agreement.
Streamlined installment agreement
The IRS offers two types of streamlined installment agreements: one for those who owe $25,000 or less and another for those who owe between $25,000 and $50,000. Both types of streamlined agreements run for up to 72 months and have a minimum payment calculated by dividing the number of months covered by the agreement.
Non-Streamlined Installment Agreement
If you owe the IRS more than $100,000 you will be subject to a more detailed review of your finances by the IRS before it reaches an installment agreement with you. Your minimum payment amount will be negotiated based on the IRS’s assessment of your finances. However, the IRS may require you to sell some of your assets to pay down some of your tax debt.
Partial Payment Installment Agreement
A partial payment installment agreement with the IRS requires you to make monthly payments to the IRS but does not require you to pay off your entire tax debt. The IRS forgives any unpaid balance that is not paid by the end of the agreement.
For a taxpayer to qualify for a partial payment installment agreement you must owe at least $10,000 to the IRS, including interest and penalties. If you have any assets you must show that you could not sell them for enough to cover your debt or that there is a reason they cannot be sold.
Qualifying for a Tax Payment Plan
The IRS only has a few basic requirements that must be met for a taxpayer to qualify for an installment agreement. One of the most important is that the IRS considers you to be “compliant,” which means that you have filed all of the required tax returns and are up-to-date with your tax obligations for the current year.
If you owe $50,000 or less you likely qualify for a streamlined installment agreement. Individual taxpayers with more than $100,000 in tax debt are usually required to submit a financial statement to negotiate an installment agreement.
Fees for Tax Payment Plans
It will cost you $31 to set up a direct debit payment plan from your checking account online and $107 to set up a plan by phone, by mail, or in person. If you are not using direct debit, it will costs you $149 to set it up online and $225 to set up a plan by phone, by mail, or in person. Some low-income taxpayers may qualify for reduced fees.
Accepted Payment Methods for Installment Agreements
Once you have set up an installment agreement with the IRS you may make payments using the following methods if you owe less than $25,000:
- Direct payment from a checking or savings account (direct debit)
- Electronically online or by phone after you have registered to use the Electronic Federal Tax Payment System
- By check, money order, debit card or credit card (fees will apply)
If you owe more than $25,000 in unpaid tax you are required to pay by direct debit.
What if I Default on an Installment Agreement?
If you receive notice from the IRS that you have defaulted on your installment agreement you can ask for it to be reinstated, but the IRS may charge a reinstatement fee and penalties and interest will continue to accrue. The IRS will send you advanced notice of its intent to terminate an installment agreement to give you the opportunity to respond and ask for it to be reinstated before starting collection.
As a general rule, the IRS will not take action to collect from a taxpayer who has defaulted on an installment agreement when it is evaluating an appeal or for 30 days after the plan has been terminated.
Contact Us for Help With Tax Payment Plans
If the IRS has contacted you about a tax debt that you cannot pay the tax professionals at Hillhurst Tax Group can help you assess whether you qualify for an installment agreement and the type of agreement that is best for your financial situation. To set up a free consultation, contact us at [email protected] or (323) 486-3314.
Installment Agreement FAQs
Can I have two installment agreements with the IRS?
No. If you have an installment agreement and have additional assessed taxes that you cannot pay you must add that balance to your existing agreement.
How much interest does the IRS charge on installment agreements?
The IRS interest rate is the federal short-term rate plus 3 percent, compounded daily.
What happens if you default on an IRS installment agreement?
You can ask the IRS to reinstate your installment agreement if you receive notice that you are in default. The IRS will usually refrain from collection actions for 30 days after defalt.
Can I pay off my IRS installment agreement early?
There is no penalty if you pay off your installment agreement early.
Can you add to an IRS installment agreement?
Yes, but you must act quickly after you expect to owe the IRS additional taxes for the current year. Once the IRS has determined that you owe an additional balance it will consider your existing installment agreement to be in default. You may request an amendment to the agreement by phone, in person, or by completing a Form 9465, Installment Agreement Request.
Can I modify an IRS installment agreement?
Yes. The IRS allows you to submit a request to modify or terminate an installment agreement.
How do I request an installment agreement?
You can apply for an IRS installment agreement online or by filing a Form 9465, Installment Agreement Request.
How long can the IRS collect on an installment agreement?
The IRS statute of limitations for collecting on unpaid taxes is 10-years from the date they are assessed. That means that the IRS will expect any installment agreement to run fewer than 10 years.