How Long Will the IRS Give You to Pay?
Having an outstanding tax bill is never a good thing. What’s even worse is not having enough money to pay the IRS as soon as you learn that you owe taxes. This situation can arise when filing your taxes, but other times it might come up when you get an unexpected tax assessment from the IRS.
Whatever your situation, the IRS offers several payment options to let you pay your taxes over time. But how much time does the IRS give you? The answer to that question depends on several factors, such as how much you owe, the age of your tax debt, and how much extra time you need.
What to Do If You Need Extra Time to Pay Your Taxes
The first thing you should do is confirm the IRS is correct in concluding you owe them money, as the IRS isn’t perfect. There’s also a chance that you made a mistake on your tax return, leading the IRS to believe you owe them money when you really don’t. In this situation, you’ll want to provide more complete and accurate information to the IRS.
Assuming you owe the IRS what they’re asking of you, try to pay as much of the tax bill as you can. This is to reduce any penalties and/or interest the IRS might charge you. It can also help show good faith on your end if you are trying to negotiate a payment plan in the future.
After paying as much as possible to the IRS, it’s time to create a plan to pay the rest of your taxes over time. Generally speaking, there are two types of monthly payment plans, and they are defined by the length of time you get to pay: short-term plans and long-term plans.
180-Day Short-Term Payment Plans
These are payment plans that last 180 days or less and are open to individuals who owe less than $100,000 in taxes, penalties, and interest. There is no fee to utilize this payment option, but you will need to pay any penalties and interest that accrue while you pay off your tax balance.
You can make payments to the IRS directly from your bank account using Direct Pay or by mailing a check or money order to the IRS. You can also pay with a debit or credit card, although there will be a small fee because the IRS uses third-party payment processors to accept these forms of payment.
Long-Term Payment Plans: An Overview
Often referred to as installment agreements, these are payment plans open to individuals and businesses, and they provide taxpayers with several years to pay off a tax obligation. Here’s a breakdown based on how long you get to pay:
Up to 72 Months for Individuals
Individuals who have a balance of less than $50,000 in assessed tax are eligible. Payments are made each month for up to 72 months and can be set up with an automatic bank withdrawal (required for balances between $25,000 and $50,000) or manually sending monthly payments.
Up to 24 Months for Businesses
Businesses can set up installment agreements, but only if they owe $25,000 or less in assessed tax, penalties, and interest and have filed all required tax returns. Businesses will make monthly payments and have up to 24 months to pay off their tax bill. An automatic bank withdrawal payment method is required for balances between $10,000 and $25,000.
Other Payment Terms
If your business is no longer in operation, you can often get longer than 24 months to pay. Similarly, if you’re an individual who owes over $50,000 or can’t afford to pay off your balance in 72 months, the IRS may give you longer to pay, but in exchange, you will need to provide a lot of financial documents.
Besides paying the required interest and penalties, there is a fee for having a long-term payment plan. If using an automatic bank withdrawal, the setup fee is $31 (this fee can be waived for low-income taxpayers). Without an automatic bank withdrawal payment method, the setup fee is $130 (this fee can be reduced to $43 in certain cases for low-income taxpayers).
Different Types of Installment Agreements
One of the advantages of an installment agreement over a short-term payment plan (besides having more time to pay) is that there are several different options that may better meet your specific needs. Below are some of the more common types used by the majority of taxpayers.
Up to 72 Months With a Streamlined Installment Agreement
The streamlined installment agreement gives you up to 72 months to pay off your tax balance. However, you might have less time if the Collection Statute Expiration Date (CSED) comes before this 72-month period ends. In other words, you’ll have 72 months or until the CSED to pay off your balance, whichever deadline arrives first. Most taxpayers are eligible for the streamlined installment agreement if the following conditions exist:
- The tax debt is $25,000 or less.
- The tax debt is over $25,000 but less than $50,000, and the taxpayer agrees to pay with an automatic payment method (payroll deduction or direct debt).
Note that these aren’t the only requirements. You must also be compliant with filing requirements, and you may need to meet other criteria.
Up to 10 Years With a Non-Streamlined Installment Agreement
With a non-streamlined installment agreement, you can get up to 10 years to pay your tax debt. Generally, the IRS starts by offering you up to six years to pay, but if you cannot afford the minimum payments on a 72-month payment plan, you can stretch out your payments to the collection statute expiration date (CSED).
The CSED is 10 years after the tax assessment. So theoretically, if you apply for a non-streamlined agreement, you can get up to 10 years to pay. However, since most people apply several months or even years after the assessment date, most payment plans don’t end up being this long.
Note that with these agreements, the IRS will generally file a tax lien against your property. You may also have to complete a collection information statement.
Three-Year Guaranteed Installment Agreement
This is an option if you owe $10,000 or less and you meet all of the following conditions:
- You have filed all required tax returns for the past five years, paid all required income taxes, and haven’t entered into another installment agreement for income taxes.
- You agree to pay your entire tax bill within 36 months.
- You don’t have the money to pay your entire tax balance on its original due date.
While you’re not technically guaranteed to get this payment plan from the IRS just by asking, it’s usually the quickest and easiest installment agreement plan available. As long as you’re compliant with past filing obligations, the IRS usually approves these agreements.
Up to the CSED With a Partial Payment Installment Agreement
This installment agreement allows you to pay off your tax debt for less than what you owe. To be eligible for a partial payment installment agreement (PPIA), you’ll need to provide extensive financial records to prove you can’t afford to pay your entire tax balance. The way the PPIA works is by allowing you to make a payment each month until the CSED. At that point, whatever you still owe gets wiped away by the IRS.
Penalties and Interest When Using a Payment Plan or Installment Agreement
Keep in mind that the longer you take to pay, the more interest and penalties you will incur on your account. The faster you pay, the less you will pay in total.
The exact interest rate and penalties will depend on your specific tax situation, as well as the financial markets as a whole. That being said, the interest charged while paying off your tax bill over time will be 3% + the federal short-term interest rate. The late-payment penalty is 0.5% for each month (up to a maximum of 25%) you have an unpaid tax balance.
What Happens If You Still Can’t Pay Your Taxes?
If you receive a payment plan or installment agreement with the IRS, you still might struggle to pay off your tax debt. For instance, you might miss multiple tax payments. If this happens due to changed financial circumstances, you may be able to negotiate with the IRS for lower monthly payments. If that doesn’t work, you have a few more options.
First, you can apply for currently not collectible status (CNC) with the IRS. If granted, your tax debt remains and penalties and interest will continue to accrue, and IRS may place a lien on your assets. However, the IRS will stop trying to collect the tax debt, such as with a tax levy.
It’s not easy for the IRS to approve your request for CNC status, as they aren’t usually quick to agree with you that you don’t have enough money to pay your unpaid taxes and reasonable living expenses.
Second, you can request an offer in compromise (OIC). An OIC is an agreement between you and the IRS where they agree to settle your tax liability for an amount that’s less than what you owe. It’s not easy to have the IRS grant your OIC request, but if you get it, you will either get a lump-sum offer or a periodic-payment offer. With lump-sum offers, you usually have five months to make the agreed-upon lump-sum payment. With periodic-payment offers, you’ll make monthly payments for anywhere between six to 24 months.
Third, there’s filing for bankruptcy. Chapter 7 bankruptcy can sometimes wipe away tax debts if all of the following parameters exist:
- The tax debt only includes unpaid income taxes (and associated interest and penalties).
- The tax debt is at least three years old.
- The IRS must have assessed the tax debt within the last eight months.
- The tax returns relating to the debt must have been on file with the IRS for the last two years.
The W Tax Group Can Help with Unpaid Taxes
Dealing with unpaid taxes can be stressful. Yet there could be several options available to help you pay off your tax bill over time, possibly even for less than what you owe. But taking advantage of these programs can sometimes be complicated or confusing, especially when it comes to meeting financial eligibility requirements.
The W Tax Group offers free consultations to help you determine what your next steps should be. To get help dealing with your unpaid taxes, contact us today.