IRS Installment Agreement

How to Set Up Monthly Payments on Your IRS Tax Debt

If you have unpaid taxes, you may want to consider an IRS installment agreement. The IRS allows qualifying taxpayers to make monthly payments on their taxes. Setting up an installment agreement reduces the penalties on your account, and it prevents the IRS from garnishing your wages, seizing your bank account, or pursuing other types of collection activities. 

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.

Table of Contents

• Payment plan options on IRS tax debt
• Application instructions for IRS payment plans
• Details required to apply for an installment agreement
• Payment plan set-up fees
• How to make payments
• What to expect when you’re on a payment plan
• How to manage your IRS Installment Agreement
• How to avoid defaulting on your agreement
• FAQs about IRS installment agreements

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.

Options for Making Payments on Tax Debt

The IRS offers a few different types of payment plans including the following:

• Short-term hardship extension – If you’re experiencing financial hardship, you can request a payment extension by filing Form 1127. You must explain the hardship and provide proof of your income/expenses for the last month. You can get an extension of up to six months on a newly filed tax return or up to 18 months on a tax deficiency from an audit or adjustment.

• Short-term payment plan – If you normally pay your taxes on time, you can request a short-term payment arrangement online if you owe $100,000 or less. With this plan, you agree to pay the taxes within 180 days of the due date, and you don’t have to make monthly payments. 

• Guaranteed installment agreement – Taxpayers who owe $10,000 or less, can pay off the balance in three years or less, and are normally compliant with tax obligations can get a guaranteed agreement. That means, you request payments, and the IRS immediately approves the arrangement. 

• Streamlined installment agreement – Available to taxpayers who owe $50,000 or less, streamlined payment plans can be set up online. As long as you can repay the balance in monthly payments within six years, you don’t have to provide any financial details. However, if you owe more than $25,000, you must set up direct debit payments. 

• Non-streamlined installment agreements – These payment plans are called non-streamlined because you must provide details about your financial situation to get approved. The IRS will accept these agreements on a case-by-case basis on nearly any level of tax debt, but you must be able to pay off the balance by the collection statute expiration date. 

• Partial payment installment agreement – These “partial” payment plans are for taxpayers who cannot afford the minimum monthly payment on any of the above options. You make small monthly payments until the debt expires, at which time the remaining balance also expires so you don’t have to pay it. However, the IRS will periodically review your financial situation and may require you to switch to a conventional payment plan if your finances improve. 

If you cannot afford any of the above options, you should look into an Offer in Compromise where you settle for less than you owe or Currently Not Collectible where the IRS stops collections after you prove that you cannot pay. In all cases, you should also consider penalty abatement to reduce your balance owed.

How to Apply for an IRS Installment Agreement

There are a few different ways to apply for payment plans depending on the option you select and how much you owe. A tax attorney can help you with the following or check out the resources for more tips on the process:

Apply for Payments Online

If you owe $50,000 or less, you can apply for an IRS payment plan online. Businesses can apply online if they owe $25,000 or less. To use the IRS’s online portal, you will need to set up an online account which requires your name, Social Security Number, and other tax details, and you also need to verify your identity with an ID, a camera, and an email address.

Apply for Payments Through the Mail

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, and you may also need to submit a collection information statement with more details about your financial situation. 

Apply for Payments Over the Phone

Note that you don’t necessarily need to mail in Form 9565. 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). If you’re working with a revenue officer, they may request Form 433-A if you’re an individual and/or Form 433-B for businesses. 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.

There is no set form to apply for a partial payment installment agreement. Contact the IRS directly or work with a tax attorney and be prepared to file a collection information statement.

Back Tax Filing Requirements

If you have unfiled tax returns, you will need to catch up on that before you can set up an installment agreement. Generally, the IRS only requires you to file the last six years – so that’s good news if you’re really behind. If the IRS has already issued a substitute for return, you may be able to use that instead of filing a new return, but if you do so, make sure it reflects an accurate tax liability for you.

Finalizing Your Agreement and Setting Up Payments

The IRS may have you sign Form 433-D to finalize your installment agreement. This form lists the terms of your agreement. You can also use this form to set up direct debit payments from your bank account. If you set up a payment plan online, you may end up signing an electronic version of this form.

IRS Fees for Setting up a Payment Plan

The IRS charges a setup fee for some of its payment plans. As of 2024, the IRS fees to set up an installment agreement are as follows:

• Set up online and pay with direct debit – $22
• Set up through mail, phone, or in-person and pay with direct debit – $107
• Low income with direct debit payments, set up online, over the phone, or in-person – No fee
• Set up online without direct debit – $69
• Set up through mail, phone, or in-person, without direct debit – $178
• Low income without direct debit payments, set up online, over the phone, or in-person – $43 which may be reimbursed if certain conditions are met.

How to Make Payments on Your Installment Agreement

If you set up direct debit payments, the IRS will take your monthly payment out of your desired bank account every month on the day you select. 

You can also request to have your employer withhold your payments from your paycheck and mail them to the IRS. 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.

Alternatively, you can mail in payments – the IRS should send you a monthly payment voucher, but even if you don’t receive one, you still must pay. 

You can also sign into your online account and make payments manually. Even if you didn’t set up the payment plan online, you should be able to pay online. You can pay with your credit/debit card for a fee or with a bank account for free. You can also make payments through the EFTPS system, but you may need to pre-register and get an authorization code through the mail.

What to Expect With an IRS Payment Plan

Here’s what to expect when you’re on a payment plan:

• No collection actions – The IRS will not garnish wages, seize assets, etc.
• Possible tax liens – If you set up the installment agreement quickly and owe less than $50,000, the IRS will not issue a tax lien, but in other cases, they may.
• Penalties – The IRS will apply a failure to pay penalty at a rate of .25% per month. For example, if you owe $10,000, this penalty is $25/month.
• Interest – The interest rate adjusts quarterly, and it’s the federal short-term rate plus 3 percent.
• Refund offset – The IRS will keep all federal and state tax refunds and apply them to your balance.

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 you approve a rejection or termination if applicable.

Managing Your IRS Installment Agreement

You can check your payment history and see 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.

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. For example, you can change your payment date or banking details online. You can also change your payment amount as long as the new amount works 

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, the IRS will send you Notice CP523 and 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.

FAQs on IRS Installment Agreements

Can I make extra payments on my installment agreement?

Yes, you can make extra payments by mailing checks/money orders to the IRS or by submitting additional payments online. Paying extra will reduce how much you owe and save you money on penalties and interest over the long run, but it will not reduce your next month’s payment. 

What’s the difference between a guaranteed and streamlined plan?

Both of these plans allow you to make monthly payments, and neither of them require financial details. However, with a guaranteed plan, you must owe less than $10,000 and be able to pay within three years. Streamlined plans are for debts up to $50,000 with payment plans up to six years.

Is an installment agreement a settlement?

No, an installment agreement is a monthly payment plan on your tax debt. You must make payments that will pay off the full balance by the collection expiration date, or you must prove that you’re making the highest monthly payments you can afford. In exchange for you making payments, the IRS stops collection activity on your account.

Can you get taxes forgiven through an installment agreement?

Although an installment agreement is not a settlement per se, you may get taxes forgiven if you qualify for a partial payment installment agreement. Once you reach the end of this payment plan, the IRS effectively waives the remaining balance. 

Can I get a lien removed by setting up payments?

If the IRS has already issued a tax lien, you may be able to get it released if you owe less than $50,000 and make payments for at least three months on an approved agreement.

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 you need to be careful about avoiding common mistakes. 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.

Lead Tax Attorney at The W Tax Group

Stephen A Weisberg