How to Apply and What to Expect
If you cannot afford to pay your tax liability in full and on time, the Internal Revenue Service (IRS) may let you set up a payment plan. Both individuals and businesses can qualify for payment plans on unpaid taxes. Depending on your situation, the IRS may give you up to six years (even longer in some cases) to pay off your tax bill, but the length of time you get to pay varies based on the situation.
Need help setting up a payment plan or making other arrangements? The tax attorneys at The W Tax Group can help you negotiate an arrangement with the IRS — contact us for help today.
How to Apply for an IRS Installment Agreement
Individuals can apply for installment agreements (also called long-term payment plans) online if they owe $50,000 or less in tax, penalties, and interest. Generally, these payment plans don’t require you to submit detailed financial information, and they are referred to as streamlined.
If you owe $100,000 or less, you can apply online for a short-term payment plan of 180 days or less. Businesses can apply online if they owe $25,000 or less.
To apply online, visit the IRS’s online payment agreement application. Choose individual or business, and then, follow the online prompts. Note that sole proprietors should apply as individuals.
Alternatively, individuals can apply through the mail using Form 9565 (Installment Agreement Request). An individual applying on behalf of a business that is no longer operating may also use this form.
If you owe over $50,000, you must file this form to request a payment plan. Taxpayers who owe over $50,000 in assessed tax debt may qualify for a non-streamlined installment agreement. This type of payment plan gives you more time to pay, but generally, the IRS will file a federal tax lien until you complete the payment plan.
Note that you don’t necessarily need to fill out this form and mail it in. Instead, you can call the IRS and give them the details from this form.
To apply for an installment agreement over the phone, individuals should call the IRS at 800-829-1040. Businesses can call 800-829-4933. If your most recent IRS notice has a phone number on it, you can also call that to request a payment plan.
Details Required to Apply for a Payment Plan
If you owe less than $50,000, can pay off the bill within 72 months, and set up direct debit for your monthly payments, you only have to provide the IRS with basic details on your application. They include the following:
- Name, Social Security Number, and address
- Business name, employer identification number, and address
- Total amount owed
- Proposed monthly payment
- Bank routing and account number
To determine your minimum monthly payment, the IRS divides your total amount due by 72. For example, if you owe $7,200, you need to pay at least $100/month. Ideally, you should pay more than this amount to ensure you’re covering interest and penalties.
Collection Information Statement for Payment Plans
If you cannot afford the minimum monthly payment, you need to file Form 433-F (Collection Information Statement). You also need to file this form if you owe between $25,000 and $50,000 but don’t want to set up direct debit. This form requests detailed information about your assets, debts, income, and living expenses.
In the past, you also needed to file this form if you owed more than $50,000, but due to changes to the non-streamline installment agreement, you don’t need to file this form if you owe less than $250,000 and your account has not been assigned to a revenue officer.
Payroll Deduction Agreement
You can also request to have the IRS withhold your payments from your paycheck. To do so, file Form 2159 (Payroll Deduction Agreement). Both you and your employer will need to enter details on this form. It requires basic contact details as well as information about your wages and payment cycles.
Managing Your IRS Installment Agreement
You can check your payment history and how much you owe online. If you don’t have an online account, have your ID ready and be prepared to answer authentication questions based on details from your credit report.
Note that if you have an existing payment arrangement, you may need to set up a new IRS online account. As of November 14, 2021, the IRS canceled usernames that were only used to access online payment agreements.
You can also request changes to your payment agreement online. The IRS charges $10 to revise your payment plan — low-income taxpayers can make revisions for free.
How to Avoid Going into Default on Your Installment Agreement
The IRS requires you to meet certain standards or your payment plan will go into default. Here is what you need to do to maintain your installment agreement:
- Pay the monthly payment on time.
- File all required tax returns on time.
- Pay all future tax bills on time.
- Send the IRS Form 8822 (Change of Address) if you move.
- Include name, address, SSN, daytime phone number, tax year, and return type on your check if paying through the mail.
If your payment plan goes into default, you may have to pay a reinstatement fee.
If you incur a new tax liability that you can’t afford to pay, the IRS may put your existing payment plan into default. However, in some cases, you may be able to avoid this by adding your new tax bill to your existing installment agreement.
What to Expect With an IRS Payment Plan
When you apply for an installment agreement, the IRS will typically not pursue any enforced collection actions (such as liens, levies, and garnishments) while the application is in review. The IRS also won’t pursue enforced collection action while the plan is in effect, 30 days after a plan is rejected or terminated, and while the IRS reviews the rejection or termination.
As you make payments, interest and penalties will continue to accrue on your account. The failure-to-pay penalty is typically just 0.25% of your balance every month. The interest rate adjusts quarterly, and it’s the federal short-term rate plus 3 percent. Additionally, the IRS will keep all federal and state tax refunds and apply them to your balance.
IRS Fees for Setting up a Payment Plan
The IRS charges a setup fee for some of its payment plans. As of 2022, the IRS fees to set up an installment agreement are as follows:
- Payment in full online, over the phone, or through the mail — $0
- Short term payment plan of 180 days or less online, phone, or mail — $0
- Long term payment plan of over 180 days online — $31
- Long-term payment plan with direct debit, by 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.
- Long-term payment plan with payroll deduction — $225
- Long-term payment plan with payroll deduction if you’re low-income — $43
- Setting up a long-term payment plan without direct debit when you’re low income — $43.
If you pay online with a credit card, you will have to pay additional processing fees.
Get Help Setting Up an IRS Installment Agreement
If you don’t owe much tax and can make direct debit payments, you may easily be able to set up an IRS installment agreement online. But if your situation is more complicated or if you want to pursue other options, you should reach out for help.
The tax attorneys at The W Tax Group have extensive experience setting up IRS payment plans and negotiating with the IRS. Don’t ignore your tax bill or get in a situation where the IRS starts seizing assets or garnishing your wages. Get help dealing with the IRS — contact us today.