IRS Installment Agreements or Payment Plans

If you are unable to full pay your tax debt in full, you may be able to establish a payment plan with the IRS. The IRS has different options when it comes to paying them back the past due taxes.

Short-Term Payment Strategy

The IRS will provide additional time to pay your balance due in full within 180 days. You don't have to apply or pay any fees, but interest and penalties will continue to accrue until the tax bill is paid in full.

Long-term Payment Plan (Installment Agreement)

When repayment will take longer than 180 days, the IRS offers the following formal payment arrangements, often known as installment agreements:

If you are an individual taxpayer and you owe $50,000 or less in tax, penalties, and interest, you can request an installment agreement that will pay off the debt within 72 months.

Guaranteed Installment Agreements

You have the right to an agreement without submitting a financial statement if:

• The amount of tax you owe is less than $10,000.
• You agree to pay the liability before the period for collecting the tax expires.
• You comply with the tax laws during the agreement.

Streamlined Installment Agreements

There are two types of streamlined installment agreements. The one you request depends on how much you owe and what kind of tax you're dealing with. There is no need to present a financial statement for either sort of agreement, which must be paid in full within 72 months (six years).

1. Tax balance less than $25,000 (including interest and penalties)

This is available to:

-Individuals.

Businesses that are still operating and only owe Form 1120 income tax or Form 1065 late filing penalties; and

-Businesses that have gone out of business.

2.  Assessed tax balance from $25,001 to $50,000 (including interest and penalties).

This is available to:

Individuals

-Out-of-business sole proprietors.

Important Caveat: To get this type of agreement where the balance due is $25,001-$50,000, you must pay through either a direct debit or payroll deduction agreement.

How to Request an Installment Agreement

You can apply online by visiting the IRS Online Payment Plan Portal.

-You can mail in form Form 9565 (Installment Agreement Request).

Or you can call the IRS at 800-829-1040, and if you are a business, you can call 800-829-4933.

PPIA (Partial Payment Installment Agreement)

A partial-pay installment agreement reduces your tax liability while allowing you to pay in monthly installments.These agreements can save you money, but they are difficult to set up and require a lot of time and effort.

The IRS generally only has 10 years to collect on those taxes from when they were assessed. Under the partial payment installment agreement, the taxpayer makes monthly payments on their debt until the 10 year collection statute expiration date (CSED). Once the expiration date expires, the taxpayer is no longer required to make those monthly payments.

How to Request a Partial Pay Installment Agreement

To request a PPIA, you need to fill out IRS Form 433A (Collection Information Statement for Wage Earners and Self-Employed Individuals) or 433B (Collection Information Statement for Businesses). These forms require you to provide information about your assets, liabilities, income, and expenses.

Depending on your answers to the financial statements, the IRS will research your case and might ask you some further questions in regard to

• assets and income that were not disclosed on the financial statement.
• bank statements to verify the accuracy of what you reported.
• Personal property records
• Proof of income and reasons behind a decrease in your income, if applicable.
• Real property records

How the IRS Decides How Much You Can Pay Per Month

The IRS wants you to pay as much as you can afford. The IRS wants all your additional income to go toward your tax balances after valid expenses.

If the IRS determines that you spend too much money on food, you won't be able to use that amount in figuring out how much you can afford.

So how does the IRS determine your expenses? The IRS Collection Financial Standards are a perfect place to start. The IRS allows a standard amount for food, clothing, housing, and transportation. They do not give much room to operate outside of these standards. The IRS will also look at other expenses such as utilities, cell phones, insurance, taxes, child support, required 401k, etc.

This can get very complicated and seeking the help of a tax professional is highly suggested.

What You Need to Know:

Before you request an installment agreement, it is very important that you know the following:

1.) Before the IRS will consider an installment agreement, all of your tax returns must be filed.

2.) Once you’ve agreed to the installment agreement with the IRS, you’ll have to file and pay all future taxes on time, or you'll be kicked out of your agreement.

3.) Interest and penalties will continue to accumulate during the term of the agreement.

5.) Once an agreement has been reached, any tax refunds will be applied to your debt.

If the IRS agrees to an installment agreement, it may still file a Notice of Federal Tax Lien.

Does the IRS Charge a Fee to Enter into an Installment Agreement?

As of 2022, the IRS fees for setting up an installment agreement are as follows:

• Payment in full — $0 if made online, by phone, or by mail.
• 180-day or less payment plan online, by phone, or by mail — $0
• Online payment plan for more than 180 days — $31
• Long-term payment plan via direct debit via phone, mail, or in-person — $107.
• Long-term payment plan with direct debit for low-income taxpayers—$0
• Long-term payment plan without direct debit online—$130
• Long-term payment plan without direct debit by phone, mail, or in person—$225.

Get Help with an Installment Agreement

Wolf Tax has a tax attorney with a long history of successfully negotiating with the Internal Revenue Service and establishing payment plans. Don't get into a situation where the IRS takes your assets or garnishes your salary by ignoring your IRS tax obligations.