IRS Payment Plans: Installment Agreements for Taxpayers

If you cannot pay your full tax liability immediately, the IRS may allow you to pay over time through an installment agreement. This can help you avoid more serious collection actions while satisfying your tax debt. An installment agreement allows you to make monthly payments to the IRS until your tax debt is paid in full, providing a manageable way to resolve tax obligations without experiencing financial hardship.

Installment agreements are one of the most common methods taxpayers use to resolve tax debt. They provide flexibility and predictability, allowing you to budget for your tax payments while avoiding more severe collection actions such as bank levies, wage garnishments, or property seizures. The IRS generally prefers installment agreements over other collection alternatives because they ensure full payment of the tax debt over time.

Types of Installment Agreements

The IRS offers several types of payment plans, each with different requirements and benefits. Understanding which type applies to your situation is important for ensuring you can qualify and maintain the agreement successfully.

Short-term payment plans are available for taxpayers who owe less than $100,000 in combined tax, penalties, and interest. These plans allow you to pay your balance in full within 180 days (approximately six months). There is no setup fee for short-term payment plans, making them an attractive option for taxpayers who can pay relatively quickly.

Long-term payment plans (guaranteed) are available if you owe $10,000 or less in combined tax, penalties, and interest, and can pay the balance within three years. To qualify, you must have filed all required returns and paid all taxes for the previous five years. The setup fee is lower for guaranteed agreements, currently $31 if set up through the Online Payment Agreement system, or $107 if set up by phone, mail, or in-person.

Long-term payment plans (streamlined) are available for balances under $50,000 that can be paid within 72 months (six years). These agreements don't require detailed financial information, making the application process simpler. The setup fee is currently $130 for online applications or $225 for phone, mail, or in-person applications.

Long-term payment plans (non-streamlined) are required for larger balances or if you cannot pay within 72 months. These agreements require detailed financial information through Form 433-F, Collection Information Statement, and the IRS will determine your payment amount based on your ability to pay after considering necessary living expenses.

Setting Up a Payment Plan

You can apply for most payment plans online through the IRS website's Online Payment Agreement system, which is the fastest and most convenient method. Online applications are typically processed immediately. You can also apply by phone by calling the IRS, by mail using Form 9465, Installment Agreement Request, or in person at a local IRS office.

To qualify for most payment plans, you must be current with all tax filings. The IRS typically requires that all returns for the previous six years be filed before approving an installment agreement. Additionally, you must remain current with future tax obligations, meaning you must continue to file returns and pay taxes on time while the agreement is in effect.

When setting up the agreement, you'll need to determine your monthly payment amount. For guaranteed and streamlined agreements, you calculate this yourself based on your ability to pay. For non-streamlined agreements, the IRS will calculate the payment based on your financial information.

Important Considerations

While an installment agreement can help you manage tax debt, it's important to understand that interest and penalties continue to accrue on the unpaid balance throughout the term of the agreement. Interest is charged at the federal short-term rate plus 3%, and the failure-to-pay penalty continues to accrue, though it may be reduced if you're making timely payments.

You must make all payments on time and remain current with future tax obligations. If you miss a payment or fail to file future returns or pay future taxes, the IRS may default your agreement and take collection action. If your financial situation changes and you can pay more, you should contact the IRS to increase your payments and pay off the debt faster, reducing interest and penalties.

If your financial situation worsens and you cannot make your payments, contact the IRS immediately. You may be able to modify the agreement to lower your payments or explore other collection alternatives such as an Offer in Compromise or currently not collectible status.