Installment (Payment) Agreements

Receiving a tax bill from the IRS can be a daunting experience, but addressing it promptly is crucial to avoid enforced collection actions. While paying the full amount before the due date is ideal, many taxpayers face financial constraints, especially during challenging times. Fortunately, the IRS offers alternatives, such as setting up an installment agreement to help manage tax debts.  Almost every state tax agency also offers installment agreements, but I will focus here on the IRS process.

An IRS installment agreement, commonly known as a payment plan, allows taxpayers to pay their federal tax bill in monthly installments over some time. These agreements can be arranged online, by phone, by mail, or in person, offering both short-term and long-term options.

The short-term installment agreement allows taxpayers to settle their tax debt within 180 days. The long-term option extends the repayment period up to six years for those needing more time. Choosing the right plan depends on the amount owed and the monthly payment you can afford. It’s important to note that interest and late payment penalties continue to accrue during the repayment period.

Most taxpayers are eligible for an IRS installment agreement, provided they owe less than $100,000 in combined tax, penalties, and interest, have filed all tax returns for the past six years, and can repay the debt within 180 days. Those owing $50,000 or less may qualify for a long-term plan if they need more than 180 days to settle their tax bill.

If you’re ineligible to set up a plan online, you can still apply by mail or phone. Reasons for ineligibility may include nearing the expiration of the 10-year collection statute on a tax year with a balance due.

Installment agreements can be either full pay or partial pay. Full pay agreements ensure that all outstanding balances are paid before the expiration of the 10-year statute, while partial pay agreements involve paying the maximum affordable amount but may not fully settle all tax periods within the timeframe.

For larger liabilities or partial payment agreements, the IRS typically requires a completed Collection Information Statement, such as Form 433-A, 433-F, or 433-B for businesses. These forms detail income, expenses, assets, and liabilities to determine the monthly payment expected from the taxpayer.

While there’s more to know about IRS installment agreements, discussing your specific financial situation with a professional during a consultation is advisable. Ultimately, payment plans offer a viable solution for many taxpayers, and seeking assistance from a representative familiar with the process can often lead to better outcomes.