will the irs let you set up a payment plan

Will the IRS Let You Set Up a Payment Plan?

Having trouble paying your taxes? You’re not alone. Millions of taxpayers find themselves owing the IRS each year. The good news is that the IRS offers payment plans, also known as installment agreements, that allow you to pay off your tax debt over time. With some restrictions, most taxpayers qualify for one of these plans.

What is an IRS Payment Plan?

An IRS payment plan, or installment agreement, lets you pay your tax debt in smaller, more manageable payments instead of all at once. You propose a monthly payment amount to the IRS, and if they approve it, you can pay off your balance over 6-72 months

Payment plans give you an alternative to paying your taxes in full by the deadline. Instead of a single lump sum you make smaller payments on a schedule. As long as you stick to the agreement, the IRS won’t take enforcement actions like wage garnishments or property liens against you.

Installment agreements also stop additional interest and penalties from accumulating so your balance doesn’t grow. Your payments just go toward reducing the amount you owe.

Who Qualifies for a Payment Plan?

The IRS looks at several factors to determine if you’re eligible for a payment agreement:

• You must have filed all required tax returns. If you have unfiled returns from previous years, you’ll need to submit those before setting up a payment plan.

• You must owe $50,000 or less in combined taxes, interest, and penalties. If you owe more than $50,000, you’ll have to provide additional financial information for review.

• You must pay your balance in full within 72 months. The IRS wants payment plans that pay off the debt within 6 years.

• You must be current on estimated tax payments. If you make estimated payments during the year, you have to be up-to-date on those payments.

• You must meet other tax obligations. You can’t have other overdue taxes or amounts the IRS is trying to collect.

As long as you meet these criteria, you should qualify for an installment agreement. Even if you owe more than $50,000, providing financial information can help you meet the requirements.

Types of IRS Payment Plans

The IRS offers short-term payment plans, long-term payment plans, and payroll deduction plans. Which one you qualify for depends on how much you owe and how long it will take you to pay it off.

Short-Term Payment Plan

A short-term payment plan allows you to pay off your balance in 120 days or less. The main advantage of a short-term plan is that the setup fee is lower than longer plans. The downside is that your payments will be higher.

If you owe less than $100,000 in combined taxes, interest, and penalties, you can likely get a short-term agreement. You’ll pay a $0 setup fee and must pay off the balance within four months.

Long-Term Payment Plan

A long-term payment plan has monthly payments over a 6 to 72 month timeframe. These plans fit if you need more time to pay off your tax debt.

For balances up to $50,000, the setup fee is $22 if you apply online or $107 if you apply by mail. You must still pay penalties and interest until the amount is paid in full. Low-income taxpayers can qualify to have the setup fee waived or reimbursed.

Payroll Deduction Plan

A payroll deduction agreement allows you to make automatic payments straight from your paycheck. Your employer deducts an agreed amount from each pay period and sends it to the IRS. This spreads payments evenly over the year.

Payroll deductions are commonly used if you owe additional taxes at year-end. The IRS will coordinate with your employer to take extra tax out of your check instead of paying a lump sum.

How to Apply for an IRS Payment Plan

Applying for an IRS installment agreement is easy. You can submit your request online or mail in an application.

Online Payment Agreement Tool

The quickest way to set up a payment plan is through the IRS Online Payment Agreement tool. This application allows you to apply immediately and get an instant approval decision.

To use the OPA tool, you must:

• Owe $50,000 or less in combined tax, interest, and penalties
• Have filed all required tax returns

The OPA tool lets you pick your payment amount and due date. You can choose to pay directly from your bank account, debit card, or credit card. The system will verify whether your proposal fits IRS requirements. If approved, you’ll get instant confirmation of your payment plan details.

Applying online has the biggest advantages:

• Get approved immediately
• Lower setup fees
• Make payments electronically
• Check plan status online
• Manage your account online

IRS Form 9465

You can also submit Form 9465, Installment Agreement Request, to apply for a payment plan. This form lets you request a monthly payment amount and date. It also allows you to make payments by check instead of electronically.

The downside of applying by mail is that approval takes 4-6 weeks. You’ll also pay higher setup fees. But Form 9465 allows you to request alternatives if the OPA tool turns you down.

Form 9465 is the way to go if:

• You don’t qualify for OPA
• You want checks instead of electronic payments
• You need to provide financial information
• You require a customized plan

After filling out Form 9465 with your requested terms, mail it to the IRS address listed in your tax notice. The IRS will review your request and respond by mail. If approved, you’ll get a confirmation letter within 30 days outlining your agreement.

Payment Plan Interest and Penalties

The downside of IRS payment plans is that penalties and interest continue accruing. Your monthly payments go toward the underlying tax debt, not interest and penalties. So those amounts continue increasing until your balance is paid off.

For example, if you owe $5,000 in taxes plus $500 in penalties and interest, your payments only reduce the $5,000 debt. The IRS keeps tacking on interest and penalties each month. To stop these extra charges from growing, you’ll need to pay off the full $5,500 balance.

This makes it important to stick to the payment schedule and pay off your tax bill as quickly as possible. The longer it takes, the more penalties and interest accumulate.

Tip: If you qualify for an offer in compromise, you may be able to settle your tax debt for less than the full amount. This can help limit interest and penalty charges.

Managing Your IRS Payment Plan

After setting up your payment agreement, be sure to manage it properly to avoid defaulting. Here are some tips:

• Pay at least the minimum monthly amount on time. Even one missed payment can result in default.

• Notify the IRS immediately if you can’t make a payment due to financial hardship. They may be able to revise your plan.

• Check your balance and payment history online or through monthly statements. Make sure credits are applied properly.

• Contact the IRS if you need to adjust your payment amount or date. They may approve changes to your original agreement.

• If you move, update your address with the IRS using Form 8822. Missed payments from not receiving notices can risk default.

Sticking to the terms of your installment agreement is crucial. Defaulting on your payment plan can result in the IRS terminating your agreement, applying penalties, and starting collection enforcement actions. So do your best to make all payments on time and in full.

The IRS Wants to Work With You

Owing back taxes can be stressful and scary. But ignoring IRS debt won’t make it go away, and can result in penalties, interest, liens, levies, and asset seizures. Take action by looking into payment options.

Setting up an IRS installment agreement could be your solution to becoming compliant and avoiding further issues. The IRS wants to work with taxpayers, not punish them, to resolve balances due. Payment plans make it easier to pay off what you owe over time.

Most taxpayers qualify for some type of monthly payment agreement. And applying through the OPA tool makes getting approved quick and simple. Take advantage of payment plans to take control of your tax debt and pay it off on your own terms.