IRS Simple Payment Plans

Managing tax debt can feel overwhelming, particularly if you’ve never had to explore payment options or relief programs before. However, the IRS is much more flexible than most people know. While they prefer on-time payment in full, they also have payment options that allow you to stretch your payments out over an extended period of time. 

Learn more about the IRS’s Simple Payment Plan and whether or not it’s the right option for you.

Key Takeaways

• Simple Payment Plans extend your tax debt payments until the Collection Statute Expiration Date, which is 10 years from the date of assessment.
• Eligibility requires all filed tax returns and less than $50,000 in tax debt.
• Apply online or by calling the IRS.
• Other installment agreements may be better for those with substantial tax debt or complicated tax cases.
• Other relief options, such as offer in compromise or currently not collectible status, may be better suited to those with financial hardships that would make monthly payments difficult.

What is a Simple Payment Plan?

A Simple Payment Plan is the IRS’s most straightforward installment agreement, allowing the majority of individual taxpayers to apply for a payment plan online without having to provide extensive financial documentation. It’s intended for those who owe a manageable amount of tax debt and want a simple payment arrangement that fits into their budget. 

In comparison to more complex agreements, this option has minimal documentation requirements and often provides an immediate decision when you apply. The IRS generally has 10 years from the date of tax assessment to collect what you owe. A Simple Payment Plan spreads payments out over the 10-year period.

Simple Payment Plans offer several benefits, including:

• Predictable monthly payments that won’t change as long as you stay up-to-date on payments and do not restructure the payment plan to include any new tax debt
• Simplified application process that lets you finish applying in a matter of minutes
• Peace of mind since the IRS typically does not pursue more aggressive collection actions against those who have payment plans 

Eligibility Requirements

The eligibility requirements for Simple Payment Plans are simple but worth reviewing. You must:

• Filing requirements. You must have filed the last five years of returns. Even if your returns are late, you can still request a payment plan as long as you file them.
• Debt limits: This option is designed for those who owe less than $50,000 in tax debt, penalties, and interest.
• Compliance: You must comply with all filing and paying requirements moving forward once your payment plan is accepted.

If you meet these requirements, a Simple Payment Plan may be a convenient way to pay down your tax debt without having to go through complicated or time-consuming application procedures.

When to Consider a Simple Payment Plan

Per the IRS, more than 90% of taxpayers who owe tax debt qualify for a Simple Payment Plan. This is often the ideal option for those who owe a moderate amount of tax debt and need to restructure their tax debt into a monthly payment that fits their budget. It’s also a popular option for those who want to protect their assets from liens and levies. 

Consider a Simple Payment Plan if you want a solution that doesn’t require you to provide in-depth financial information or documentation.

Situations Where Another Option May Be Better for You

While the Simple Payment Plan is suitable for many taxpayers, it isn’t right for everybody. If you owe more than $50,000, you’ll likely need to pursue another payment option that does require financial disclosure and documentation. It may also not be the best option if making payments would put you in serious financial distress, as there may be options that better fit your budget—such as currently not collectible status or an offer in compromise.

How to Set Up a Simple Payment Plan

Requesting a Simple Payment Plan is easy. You can log onto your online IRS account, navigate to the Payment Options page, and request a payment plan. The system will run your information and automatically approve or deny your request. In some circumstances, it may be unable to process your request. You’ll then need to apply via Form 9465 or reach out to the IRS directly.

If you do not want to apply online, you can apply over the phone with the help of an IRS representative. While you do not have to set up direct debit payments, this option ensures that you never miss a payment. It also costs less to set up. If direct debit doesn’t work for you, you can make monthly payments manually via your online account or send checks in the mail.

Comparing Simple Payment Plans to Other Relief Options

Key Considerations Before Applying

Before you apply for a Simple Payment Plan, make sure that this is the best option for you. Keep these things in mind:

• File all tax returns. Ensure that all tax returns are filed and that you can commit to filing on time every year until your debt is paid off.
• Know your monthly budget. After you calculate your monthly payment, make sure it fits into your budget. If it’s at the high end of what you can afford or you’ll need to really cut back to make it work, it may not be a realistic solution for you.
• Understand the costs of a payment plan. Consider what you’ll pay in interest and penalties until the time your debt is paid off.
• Plan for financial changes. Life events or financial changes can affect your ability to pay. Staying in communication with the IRS is crucial if your ability to pay changes.

Staying Compliant

Falling out of compliance with your payment plan can lead to defaulting on your Simple Payment Plan. At that point, the IRS can demand payment in full or begin aggressive collection efforts. Use these tips to stay compliant:

• Pay on time, every time: Direct debit is the easiest way to avoid late or missed payments. If that’s not an option, use calendar reminders to make payments on time.
• Keep records of payment: Keep track of every monthly payment. This ensures that you catch any issues with your payment method immediately.
• Be proactive about financial changes: If you know you won’t be able to make a payment or your financial situation changes, contact the IRS right away. They are more willing to work with you if you show an effort to compromise.
• Adjust tax payments to avoid accruing more debt: Consider changing your withholding or estimated tax payments so your taxes are paid in full every year.

When You Should Turn to a Tax Professional

While many taxpayers can set up a Simple Payment Plan on their own, professional help can be beneficial in certain cases. If you have a complex tax situation or tax debt spread across multiple years, you may want to talk to a tax attorney about which payment arrangement is best suited to your needs. 

If the monthly payment for a Simple Payment Plan is too high, talking to a tax professional is an easy way to check your eligibility for need-based relief programs. Wondering if an offer in compromise is right for you? Want to learn more about other options? We can help you navigate the application process and submit the strongest application possible.

Working with a tax professional can help you avoid mistakes that cost you time and money, keep you compliant with IRS requirements, and strengthen your odds of getting approved for your choice of payment arrangement.

A Simple Payment Plan offers a quick and easy way to begin making progress on your tax debt without having to go through a time-consuming application process. If you’re not sure this is the right option for you or you want to discuss other relief options, let’s talk. Call W Tax Group at 877-500-4930 or reach out online to schedule a consultation now.

Frequently Asked Questions

What is the difference between a Simple Payment Plan and other payment plans?

Simple Payment Plans require less documentation than other payment plans. This is due to their lower debt limits. Other installment agreement options or relief programs may require more documentation and be harder to qualify for.

I owe the IRS a lot of money—is this the right choice for me?

This is only available for those who owe $50,000 in less, including tax debt, interest, and penalties. If you owe more, you’ll need to look into other installment agreement options or tax relief. However, if you make a payment or get penalty relief to drop your balance under this threshold, you can apply then.

How do I apply for a Simple Payment Plan?

You can apply online from your IRS account or over the phone.

What happens if I miss a payment?

The IRS may give you a chance to catch up, or your plan may go into default. If your plan goes into default, the IRS may begin collection efforts.

Sources:
https://www.irs.gov/payments/simple-payment-plans-for-individual-taxpayers
https://www.irs.gov/newsroom/irs-self-service-payment-plan-options-fast-easy-and-secure
https://www.irs.gov/payments/online-payment-agreement-application
https://www.irs.gov/payments/offer-in-compromise
https://www.taxpayeradvocate.irs.gov/notices/currently-not-collectible/
https://www.irs.gov/irm/part5/irm_05-014-002r