Facing a tax bill you can't pay in full can be incredibly stressful, but you are not alone, and the IRS understands that sometimes life happens. The good news is that they offer several options to help taxpayers in these situations, primarily through payment plans. The key is to be proactive and reach out. Let's walk through exactly how you can get ahold of the IRS to set up a payment plan, step-by-step.
Your Guide to Setting Up an IRS Payment Plan
Step 1: Take a Deep Breath and Gather Your Information
Before you do anything else, pause. It's easy to feel overwhelmed, but having your information ready will make this process much smoother.
- What do you owe? Dig out any IRS notices or bills you've received. This will tell you the exact amount of your tax debt, including penalties and interest.
- Have you filed all your tax returns? The IRS generally requires you to be current on all your tax filings before they will approve a payment plan. If you have unfiled returns, that's your first priority.
- What's your financial situation? Be prepared to discuss your income, expenses, and assets. The IRS will need this to determine what kind of payment plan you qualify for. This might include:
- Recent pay stubs or income statements
- Bank statements
- A list of your monthly living expenses (rent/mortgage, utilities, food, transportation, medical, etc.)
- Information on any significant assets you own
- Your personal details:
- Your full name and address (as it appears on your most recently filed tax return)
- Your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
- Your date of birth
- Your filing status
- Your bank routing and account numbers if you plan to set up direct debit payments.
Step 2: Understand Your Payment Plan Options
The IRS offers a few different types of payment plans, each suited to different financial situations. Knowing the basics will help you decide which might be best for you.
Sub-heading: Short-Term Payment Plan
- What it is: This option gives you up to 180 days to pay your tax debt in full.
- Who qualifies: Generally, individuals who owe less than $100,000 in combined tax, penalties, and interest.
- Key points: While there's no setup fee, penalties and interest will continue to accrue until the balance is paid in full.
Sub-heading: Long-Term Payment Plan (Installment Agreement)
- What it is: This allows you to make monthly payments for up to 72 months (6 years).
- Who qualifies:
- Individuals: If you owe $50,000 or less in combined tax, penalties, and interest.
- Businesses: If you owe $25,000 or less in combined tax, penalties, and interest from the current and preceding tax year.
- Key points:
- There's usually a setup fee, though it can be reduced or waived for low-income taxpayers.
- Penalties and interest will still accrue, but the failure-to-pay penalty rate is often reduced while an installment agreement is in effect.
- The IRS encourages and may require direct debit payments for certain balance thresholds, as this makes payments easier and reduces the chance of default.
Sub-heading: Offer in Compromise (OIC)
- What it is: An OIC allows certain taxpayers to settle their tax debt for less than the full amount owed. It's a formal agreement between you and the IRS.
- Who qualifies: This option is generally for taxpayers facing significant financial hardship where paying the full amount would create an undue burden or when there's doubt about the collectibility of the debt. The IRS considers your income, expenses, and asset equity.
- Key points:
- There's an application fee ($205 in most cases), though it can be waived for low-income taxpayers.
- The application process is more involved and requires extensive financial documentation (Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, and/or Form 433-B, Collection Information Statement for Businesses).
- The IRS has a pre-qualifier tool online to help you determine if you might be eligible.
- Beware of "offer in compromise mills" that promise unrealistic results. Always go through official IRS channels or work with a reputable tax professional.
Sub-heading: Currently Not Collectible (CNC) Status
- What it is: If the IRS determines that you truly cannot afford to pay any of your tax debt due to financial hardship, they may temporarily delay collection until your financial situation improves.
- Who qualifies: Taxpayers who demonstrate genuine inability to pay.
- Key points: Penalties and interest will continue to accrue during this period, and the IRS will periodically review your financial situation. This is a temporary reprieve, not a forgiveness of debt.
Step 3: Choose Your Contact Method
The IRS offers several ways to set up a payment plan. The easiest and often quickest method is online.
Option A: Online Payment Agreement (OPA) – Recommended!
- Why it's great: This is usually the fastest, easiest, and most secure way to set up a payment plan if you qualify. You get immediate notification of approval.
- How to do it:
- Go to the official IRS website: Navigate to the "Online Payment Agreement" page. You can usually find this by searching "IRS Online Payment Agreement" or going to IRS.gov/payments.
- Create an IRS Online Account: You will need to verify your identity to set up an account. This often involves using a photo ID and a smartphone with a camera. If you already have an account with ID.me (used for many government services), you can log in directly.
- Access the Online Payment Agreement tool: Once logged in, your account will show you your balance and allow you to apply for a payment plan.
- Follow the prompts: The online tool will guide you through the application process, asking for your information and allowing you to select your preferred payment type (short-term or long-term installment agreement).
- Set up Direct Debit (if applicable): If you choose a direct debit installment agreement, you'll need your bank routing and account numbers. This often has a lower setup fee.
- Review and submit: Carefully review all the information before submitting your application. You'll receive instant confirmation.
Option B: By Phone
- When to use it: If you don't qualify for the online payment agreement (e.g., your balance is too high, or you haven't filed all required returns), or if you prefer to speak with someone.
- How to do it:
- Gather your documents: Have all the financial information mentioned in Step 1 readily available.
- Call the IRS:
- For individuals: Call 1-800-829-1040.
- For businesses: Call 1-800-829-4933.
- Alternatively, use the phone number provided on your most recent IRS notice or bill.
- Be prepared for wait times: Phone lines can be busy, especially during tax season.
- Explain your situation: Clearly state that you wish to set up a payment plan. The IRS representative will ask you questions about your financial situation to determine your eligibility and discuss options.
- Be honest and accurate: Provide truthful and accurate information about your income, expenses, and assets.
- Confirm details: Before ending the call, ensure you understand the terms of your agreement, including the monthly payment amount, due date, and any associated fees. Ask for a confirmation number or written confirmation of your agreement.
Option C: By Mail (Form 9465)
- When to use it: If online or phone methods are not feasible for you, or if you prefer to submit a paper application.
- How to do it:
- Download Form 9465, Installment Agreement Request: You can find this form on the IRS website (IRS.gov).
- Fill out the form completely and accurately: Provide all the requested personal and financial information.
- Attach supporting documents (if required): If your tax liability is above certain thresholds or if you are requesting an OIC, you may need to attach Form 433-F, Collection Information Statement, or other financial statements. The instructions for Form 9465 will specify if this is necessary.
- Mail the form: The mailing address depends on your location. Check the instructions for Form 9465 to find the correct IRS Service Center address.
- Expect a waiting period: The IRS will review your request and typically respond within 30 days by mail.
- Continue to pay what you can: Even while your request is being processed, pay as much as you can toward your tax liability to reduce penalties and interest.
Step 4: Adhere to Your Payment Plan
Once your payment plan is approved, it's crucial to stick to it.
- Make timely payments: Ensure your monthly payments are made on or before the due date.
- File all future tax returns on time: Even if you can't pay, always file your returns. Failure to file can lead to additional penalties and may cause your payment plan to default.
- Pay all future taxes due: Your payment plan only covers the existing debt. You are still responsible for paying any new tax liabilities as they come due.
- Communicate with the IRS if circumstances change: If you experience a job loss, medical emergency, or other significant financial change that impacts your ability to make payments, contact the IRS immediately. They may be able to adjust your plan. Don't wait for them to contact you!
Step 5: Consider Professional Help
While you can navigate this process on your own, sometimes a professional can be invaluable.
- Enrolled Agents (EAs), CPAs, or Tax Attorneys: These professionals can help you:
- Understand your options.
- Prepare and submit the necessary forms.
- Negotiate with the IRS on your behalf.
- Represent you if your situation is complex.
- When to consider it: If you have a very large tax debt, complex financial circumstances, or feel overwhelmed by the process, seeking professional assistance can be a wise investment. Be sure to choose a reputable professional.
Frequently Asked Questions
How to avoid penalties while on an IRS payment plan?
While interest and some penalties continue to accrue on an IRS payment plan, the failure-to-pay penalty rate is typically reduced from 0.5% to 0.25% per month for long-term installment agreements once your agreement is in effect. The best way to minimize overall penalties and interest is to pay off your debt as quickly as possible.
How to check the status of my IRS payment plan application?
If you applied online, you received immediate notification. If you applied by mail, the IRS will generally respond within 30 days. You can also check your IRS Online Account or call the IRS directly at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).
How to change my IRS payment plan details?
You can often change your monthly payment amount, due date, or bank information for direct debit payments through your IRS Online Account. If you are unable to do so online, you can call the IRS at the numbers provided above.
How to reinstate a defaulted IRS payment plan?
If you default on your payment plan (e.g., miss payments or fail to file future returns), the IRS may issue a notice of intent to terminate your agreement. You can often reinstate it by bringing your account current and contacting the IRS to discuss your situation. There may be a reinstatement fee.
How to qualify for a waived or reduced setup fee for an IRS payment plan?
The IRS may waive or reduce the setup fee for installment agreements if you are a low-income taxpayer. You will typically need to demonstrate your low-income status as part of the application process (often on Form 9465).
How to know if an Offer in Compromise (OIC) is right for me?
The IRS has an "Offer in Compromise Pre-Qualifier Tool" on its website (IRS.gov) that can help you determine if you might be eligible and estimate a preliminary offer amount. An OIC is generally for those facing significant financial hardship where paying the full amount would create an undue burden.
How to find my IRS tax debt amount?
You can find your current tax debt amount by reviewing any recent IRS notices or bills you've received, or by logging into your IRS Online Account at IRS.gov/account.
How to get help if I'm facing severe financial hardship beyond a payment plan?
If you are facing extreme financial hardship and cannot afford even an installment agreement, you may be eligible for "Currently Not Collectible" (CNC) status. Contact the IRS to discuss this option, as it will require a detailed financial disclosure.
How to avoid future tax debt?
To avoid future tax debt, ensure you are withholding enough from your paycheck or making sufficient estimated tax payments throughout the year. Use the IRS Tax Withholding Estimator tool on IRS.gov to adjust your withholding or estimated payments.
How to contact the Taxpayer Advocate Service?
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers
