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IRS Online Payment Agreement | Qualification Criteria, How to Set Up, and Alternatives
If you’ve fallen behind on taxes or you find yourself with a sizable amount due this year, you may be unable to pay your taxes in full. Don’t panic—many people have found themselves in the same situation, and you have options. You can sign up for an IRS payment plan online, set up a payment schedule that fits your budget, and avoid collection actions from the IRS.
However, it’s important to know exactly what you are signing up for and what your obligations are. It’s simple to sign up for a payment plan, and as a result, some taxpayers have found themselves bound to payment plans that are far too expensive for their budget. As you progress through this process, you should stay informed and make sure that you can fulfill your side of the agreement. Here is an overview of how to set up a payment plan on IRS tax debt online.
What is an IRS Online Payment Agreement?
An IRS Online Payment Agreement is a tool that helps individuals and taxpayers set up installment loans to cover the taxes they owe. These back taxes may include the current year’s taxes, back taxes, penalties, and interest. The online payment agreement tool at irs.gov/opa checks whether or not you qualify for a payment plan and helps you proceed with setting it up if you do qualify.
There are multiple types of online payment agreement options for taxpayers. Short-term payment plans require you to pay your tax debt off in 180 days or less. Long-term payment plans, known as installment agreements, can last up to 72 months. If necessary, you may be able to make payments for more than six years, but in that case, you won’t be able to sign up online.
Eligibility Criteria for Online Payment Agreements
You must meet certain requirements to apply for a payment plan with the IRS online. Short-term payment plans are available online to taxpayers who owe less than $100,000 in combined tax, interest, and penalties. Online applications for long-term payment plans are only available to those who have less than $50,000 in tax, penalties, and interest.
You must also file your tax returns on time. Some people think they cannot file their tax returns unless they can pay their taxes in full; however, you may not be accepted for a payment plan if your tax returns are not up-to-date. If you’re behind on filing, contact a tax pro to help you catch up with unfiled returns before you apply for a payment plan.
How to Apply for an IRS Online Payment Agreement
Once you land on irs.gov/opa, the process of applying is straightforward. You can click to apply or revise your payment plan as an individual, or you may click to apply or revise your payment plan if you are filing for someone as power of attorney. You’ll need an ID.me login, which verifies your identity during the application process.
After you log in with your ID.me account information, you can enter the total amount due for the current tax year. You will then select a 90-day repayment plan, a 180-day repayment plan, or a monthly payment plan.
You can then click through. If you choose a short-term payment plan, the IRS will tell you when your total amount is due and the consequences of not paying on time. They may levy your wages, income, bank account, or other assets. They can also terminate your payment plan if they believe they will be unable to collect from you. They also have the option to file a Federal Tax Lien.
If you choose a monthly payment, the process is slightly different. You will fill out the monthly payment amount you can afford and choose a payment due date each month. The IRS offers a Payment Estimator that takes your income and expenses into account to tell you what you can afford. You can then indicate whether you want to pay by direct debit or send your payments in every month. If you select direct debit, you will then enter your account information.
If you opt for a standard installment agreement, it will tell you where to send your monthly payments. Note that generally if you owe $25,000 or more, you must set up direct debits from your bank account, or the IRS will require additional financial information before approving your payment plan.
If your application is automatically approved, take note of the account number the IRS provides, your due date, and how much you must pay.
Understanding Payment Options and Terms
If you choose a 90-day or 180-day payment plan, there are no setup fees, but interest will continue to accrue until the balance is paid in full. You can pay from your bank account, with check, with a money order, or with a debit or credit card. Fees apply if you pay by card.
If you sign up for a monthly payment agreement, you can opt for automatic withdrawals or manual payments. The signup fee for automatic withdrawals is $31 and the signup fee for non-direct debit is $130. Again, you must pay all interest that accrues for the duration of the payment plan. Fees apply if you choose to pay with a credit/debit card.
If you don’t want payments deducted from your bank account, another option available to long-term payment plan users is payroll deduction. You must submit Form 2159, which must be filled out by your employer. Once filed, payments will be taken from your paychecks.
Note that if you are considered low-income, you may not have to pay the signup fee. This is an option for those whose adjusted gross income is at or below 250% of the federal poverty level. The user fee is waived if you agree to direct debit payments. If you cannot do direct debit, the user fee is reimbursed when you finish your installment agreement.
Managing Your Online Payment Agreement
After you have had your payment plan accepted, the IRS keeps track of your balance, payment history, and payments due on your online IRS account. If you want to change your payment agreement, you can log in the same way you logged in to set up your payment plan. If you just need to change the due date, you can generally do so without IRS approval.
You can also change your amount due if your change still allows you to complete your payment plan within the allowed time. You can also change from manual to direct payments or change the bank account from which your direct payments are withdrawn.
If you need to pay less or you need to renegotiate your installment agreement, it’s unlikely that the online tool will be able to help you. You’ll need to contact the IRS directly to talk about your financial situation and ability to pay with an IRS agent. Note that the IRS will likely require proof of your current financial situation to agree to a lower monthly payment.
If you miss a payment, know that the IRS is now free to terminate your payment agreement and demand full payment. This isn’t their first step in most cases, as they are generally understanding when taxpayers have the occasional late payment. Simply making the late payment may be enough to reinstate your account. There is a fee that you may have to pay in order to reinstate your account.
One condition of your payment plan is that you don’t incur any new tax debt. If you file a new tax return and cannot afford to pay in full, you are technically in breach of your agreement. Despite that, the IRS often lets people roll new tax debt into their existing payment agreements, but there is no guarantee and you cannot set up two payment plans.
Common Issues and Solutions
While the IRS website is generally easy to navigate, there are common issues that may arise. First, you may find it difficult to log in to ID.me. This is often the case right before or after taxes are due, as the website has far more traffic than it does the rest of the year. You can simply wait a bit and try again, or you can try at a time with less website traffic. If you continue to get error messages, you may need to call the IRS for additional assistance.
For many applicants, their application results in immediate acceptance of a short-term payment plan or long-term installment agreement. If your application is unsuccessful, you may still be able to secure a payment plan. Calling the IRS or submitting Form 9465 should be your next step.
If you need immediate assistance from the IRS, you can reach them at 800-829-1040. Note that wait times tend to be higher immediately before and after taxes are due, so plan accordingly. If you are calling to request a modification in your payment plan, have your financial information ready in case they ask for proof of changes in income.
To learn more about how to avoid common pitfalls, check out our post on how to avoid mistakes when setting up an IRS payment plan online.
Alternatives to Online Payment Agreements
If you do not qualify for the online payment plan application at irs.gov/opa, there may be other options for you to explore. First, don’t assume that not being allowed to set up an online plan means you are completely barred from a payment plan. The IRS may simply need more information to approve your plan.
Call the IRS before giving up on this option. The advantages of a payment plan include the fact that interest accrues at a fairly slow rate, penalties drop, you are free from collection actions as long as you are compliant, and the IRS accepts a variety of payment options.
If you don’t qualify to set up a payment plan online, you can file Form 9465 to apply through the mail, or you can apply over the phone using the info from this form. You may also have to submit a financial disclosure such as 433-F (Collection Information Statement).
Perhaps you do not qualify for a payment plan because you genuinely cannot make the payments needed to keep your account current. In this situation, you may want to explore making an offer in compromise or looking into currently not collectible status.
An offer in compromise allows you to settle your tax debt for less than you actually owe, which can be a great option for those with limited income. However, the IRS does expect you to pay what you can genuinely afford, which may force you to liquidate assets or leave you strapped for cash. Currently not collectible status means that the IRS will temporarily not attempt to collect payments from you, which may give you some time to get back on your feet. The downside is that interest and penalties continue to accrue.
You can also look into non-IRS payment options. Some people choose to go to close friends or family members to ask for a loan. The upside of this is that loved ones don’t generally charge interest. The downside is that you have to disclose your tax issues to loved ones and deal with the burden of being in debt to someone you love. Other options include credit cards and personal loans. The interest rates on these payment options are generally much, much higher than IRS interest rates.
When you use a credit card, there is no guarantee that you’ll pay off the debt in a timely manner. Rather than knowing that you’ll be free of tax debt in six years, you may find yourself paying the minimum every single month—and that can add up to thousands of dollars by the time you finally finish making payments.
Frequently Asked Questions
What is an IRS Online Payment Agreement and how do I know if I’m eligible?
An online payment agreement allows you to make monthly payments on your tax debt, rather than paying in full immediately. When you enter your information into the online tool, it will let you know if you are eligible.
How can I apply for an IRS Online Payment Agreement?
It’s easy to apply for a payment plan. Just follow the links at irs.gov/opa to apply. Make sure you have your current tax debt handy.
What are the different types of payment options available through an IRS Online Payment Agreement?
When you apply for an online payment plan, you can apply for a 90-day, 180-day, or 72-month payment plan.
Are there any fees associated with setting up an IRS Online Payment Agreement?
Yes. If you opt for a long-term payment plan, you pay a $31 setup fee for a debit installment agreement or $130 if you want to pay manually. These fees may be waived if you are considered low-income. You must also pay interest on the amount due.
What should I do if I cannot make a payment under my IRS Online Payment Agreement?
You should contact the IRS immediately. The earlier you let them know you cannot make a payment, the more options you may have available to you.
Can I modify the terms of my IRS Online Payment Agreement after it’s been established?
Yes. You can change the payment amount, the due date, and which account you pay from if you’ve signed up for direct debit.
How does an IRS Online Payment Agreement affect my future tax obligations?
Your future tax obligations must still be paid in full and on time. Failing to pay future tax obligations may cause the IRS to terminate your payment plan. If you are proactive and contact them right away, you may be able to roll your new tax debt into your current installment agreement. If you earn a tax refund, the IRS will apply it to your taxes due, but you still need to make the regular monthly payment.
Contact Us for Help Now
The IRS Online Payment Agreement is a convenient way to manage your tax debts, avoid IRS collection efforts, and get caught up on your taxes. It is crucial to be proactive. The IRS is usually quite flexible when taxpayers take the initiative and address their inability to pay early.
Need help with your complicated tax situation or past-due payment plan payments? We’re here to help. Call W Tax Group at 877-500-4930 or get in touch online to discuss your options.
