Navigating tax obligations can be daunting, especially when you find yourself unable to pay your tax bill in full. The good news is that the IRS understands this and offers various payment plan options to help taxpayers meet their responsibilities. Don't panic or ignore the problem! Taking proactive steps is crucial, and applying for an IRS payment plan is often the best way to avoid further penalties and interest. This lengthy guide will walk you through the process, step-by-step, ensuring you have all the information you need.
Understanding Your Options: What Kind of Payment Plan Suits You?
Before diving into the application process, it's essential to understand the different types of payment plans the IRS offers. Your eligibility and the best option for you will depend on the amount you owe and your financial situation.
Short-Term Payment Plan (Up to 180 Days)
This plan is for taxpayers who can pay off their tax debt relatively quickly, typically within 180 days.
- Key Features: No setup fee. However, penalties and interest will continue to accrue until the balance is paid in full.
- Who Qualifies: Individuals who owe less than $100,000 in combined tax, penalties, and interest.
Long-Term Payment Plan (Installment Agreement)
If you need more time to pay your tax debt, an installment agreement allows you to make monthly payments for up to 72 months (six years).
- Key Features: A setup fee applies, which can vary based on your application method (online vs. phone/mail/in-person) and whether you opt for direct debit. Low-income taxpayers may have the fee waived or reduced. Penalties and interest continue to accrue until the debt is paid.
- Who Qualifies (Individuals): You must have filed all required returns and owe $50,000 or less in combined tax, penalties, and interest.
- Who Qualifies (Businesses): You must have filed all required returns and owe $25,000 or less in combined tax, penalties, and interest from the current and preceding tax year. Payments may need to be made by Direct Debit for balances over $10,000.
Offer in Compromise (OIC)
An OIC allows certain taxpayers to settle their tax debt for a lower amount than what they owe, typically when there's doubt as to collectibility (you can't afford to pay the full amount). This is a more complex process and requires demonstrating significant financial hardship.
- Key Features: Requires a detailed financial assessment. A non-refundable application fee applies (unless you meet low-income guidelines).
- Who Qualifies: Taxpayers who can demonstrate they cannot pay their full tax liability, either due to a lack of assets or insufficient income.
Currently Not Collectible (CNC) Status
If you are facing severe financial hardship and cannot afford to pay your basic living expenses and your tax debt, the IRS may temporarily delay collection by placing your account in Currently Not Collectible status.
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- Key Features: Collection efforts are paused, but interest and penalties continue to accrue. The IRS will periodically review your financial situation.
- Who Qualifies: Taxpayers who can prove that paying their tax debt would create a significant financial hardship, making it impossible to cover necessary living expenses.
Now that you have an overview of the options, let's get into the application process.
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| How To Apply For Irs Payment Plan |
Step 1: Gather Your Information and Assess Your Situation
This is arguably the most crucial first step. Before you even think about filling out a form or contacting the IRS, you need to have a clear picture of your financial standing. Engage with this step by being honest and thorough with yourself.
Sub-heading: What You'll Need to Know and Collect:
- Your Exact Tax Liability: Know the precise amount you owe, including any accrued penalties and interest. This information can usually be found on the IRS notices you've received or by checking your IRS online account.
- Proof of Filed Tax Returns: The IRS generally requires you to be current on all your tax filings. If you haven't filed past returns, do so immediately.
- Income Documentation: Gather recent pay stubs, W-2s, 1099s, and any other documentation of your current income.
- Expense Information: Compile a detailed list of your monthly living expenses, including rent/mortgage, utilities, food, transportation, medical costs, loan payments, etc. Be realistic but thorough.
- Asset Information: List all your assets, such as bank account balances, investments, real estate, vehicles, and any other valuable possessions.
- Social Security Number (SSN) or Taxpayer Identification Number (TIN): This is essential for identification.
- Bank Routing and Account Numbers: If you plan to set up direct debit payments, you'll need these.
Sub-heading: Self-Assessment Questions:
Ask yourself these questions to help determine the best path forward:
- Can I pay my tax debt in full within 180 days? If yes, a short-term payment plan might be suitable.
- Do I owe less than $50,000 (or $25,000 for businesses) and have all my returns filed? If so, you likely qualify for an online installment agreement.
- Am I truly unable to pay my tax debt, even with an installment agreement, without facing severe financial hardship? If yes, an Offer in Compromise or Currently Not Collectible status might be options, but these are more stringent.
Step 2: Choose Your Application Method
The IRS provides several avenues for applying for a payment plan. Each method has its advantages.
Sub-heading: Option 2.1: Online Payment Agreement (OPA) Tool
This is often the fastest and easiest way to apply for an installment agreement, and it typically has the lowest setup fees.
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- Eligibility:
- Individuals: You owe $50,000 or less in combined tax, penalties, and interest, and have filed all required returns.
- Businesses: You owe $25,000 or less in combined tax, penalties, and interest from the current and preceding tax year, and have filed all required returns.
- How to Apply Online:
- Create an IRS Online Account: If you don't already have one, you'll need to create an account on IRS.gov. This involves a secure identity verification process, often requiring photo identification, access to your email, and a smartphone for a video selfie or document upload.
- Access the OPA Tool: Once logged in, navigate to the Online Payment Agreement tool.
- Follow the Prompts: The tool will guide you through the application process, asking for your financial information and preferred payment terms. You can propose a monthly payment amount, and the tool will let you know if it's acceptable.
- Select Payment Method: You'll typically be encouraged to set up direct debit payments, which can lead to a lower setup fee.
- Receive Instant Confirmation: For eligible taxpayers, you'll receive immediate notification of whether your payment plan has been approved.
Sub-heading: Option 2.2: By Phone
If you prefer speaking to someone directly or don't qualify for the online tool, applying by phone is another option.
- Contact Numbers:
- Individuals: Call the IRS at 1-800-829-1040.
- Businesses: Call the IRS at 1-800-829-4933.
- Always check any notice you received from the IRS for a specific phone number, as it might be for a dedicated unit.
- What to Expect: Be prepared to provide all the information you gathered in Step 1. The IRS representative will guide you through the process and help determine your eligibility for various payment options.
Sub-heading: Option 2.3: By Mail (Form 9465)
For those who prefer a paper-based approach or if you don't qualify for the online or phone options (e.g., if you owe more than the OPA limits), you can submit Form 9465, Installment Agreement Request.
- Form 9465 Requirements:
- Complete Form 9465 accurately, providing your personal information, the amount you owe, and your proposed monthly payment.
- If you are an individual and your tax debt is over $50,000, or if the IRS requires it based on your financial situation, you may need to attach Form 433-F, Collection Information Statement, which provides a detailed breakdown of your income, expenses, and assets. For more complex financial situations, Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, might be required.
- Where to Mail: The mailing address for Form 9465 depends on your location. Always refer to the instructions for Form 9465 for the correct mailing address. You can often find this by searching "Form 9465 instructions" on IRS.gov.
- What to Expect: The IRS typically responds to Form 9465 requests within 30 days.
Sub-heading: Option 2.4: In-Person (Taxpayer Assistance Center - TAC)
For personalized assistance, you can visit a local Taxpayer Assistance Center (TAC).
- Locate a TAC: Find the nearest TAC by visiting IRS.gov and searching for "Taxpayer Assistance Center Locator."
- Appointment Recommended: It's highly recommended to call ahead and schedule an appointment before visiting a TAC to ensure you can be seen and to confirm they can assist with your specific needs.
- What to Bring: Bring all relevant financial documents and any IRS notices you've received.
Step 3: Understanding Fees, Penalties, and Interest
While payment plans offer flexibility, it's crucial to understand the additional costs involved.
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Sub-heading: Setup Fees for Installment Agreements:
- Online Application (Direct Debit): $22
- Online Application (Non-Direct Debit): $69
- Phone, Mail, or In-Person Application (Direct Debit): $107
- Phone, Mail, or In-Person Application (Non-Direct Debit): $178
- Low-Income Taxpayers: These fees may be waived or reimbursed if you meet certain low-income guidelines. If your income is below a certain threshold, be sure to indicate this on your application.
Sub-heading: Penalties and Interest:
- Penalties: The IRS charges penalties for failing to file on time and for failing to pay on time. While a payment plan can prevent additional failure-to-pay penalties, those already accrued will remain until the debt is fully satisfied.
- Interest: Interest accrues on any unpaid tax balance, including penalties, until the debt is paid in full. The interest rate is the federal short-term rate plus 3%, and it can change quarterly. This means your total tax debt will continue to grow, even with a payment plan, until it's completely paid off.
Step 4: Maintaining Your Payment Plan
Once your payment plan is approved, it's essential to adhere to its terms. Compliance is key to avoiding default and further collection actions.
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Sub-heading: Making Your Payments:
- Direct Debit: If you set up direct debit, payments will automatically be withdrawn from your bank account on the agreed-upon date. This is generally the most convenient and reliable method.
- IRS Direct Pay: You can make payments directly from your checking or savings account for free via IRS Direct Pay.
- Electronic Federal Tax Payment System (EFTPS): This is a free service offered by the U.S. Department of the Treasury for federal tax payments. Enrollment is required.
- Debit or Credit Card: You can pay by debit or credit card through authorized third-party payment processors. Be aware that these processors charge a fee for their service.
- Check or Money Order: You can mail payments with a payment voucher (Form 1040-V) to the IRS.
Sub-heading: Staying Compliant:
- File All Future Tax Returns on Time: Even if you're on a payment plan, you must continue to file all required tax returns by their due dates.
- Pay All Future Taxes Due on Time: You also need to pay any new tax liabilities in full by their due dates.
- Notify the IRS of Changes: If your financial situation significantly improves or worsens, or if your address or bank account information changes, notify the IRS promptly. You can often make changes to your payment plan through the Online Payment Agreement tool.
Step 5: What if You Can't Meet Your Payment Plan Terms?
Life happens, and sometimes even the best-laid plans go awry. If you find yourself unable to make a payment or continue with your existing agreement, don't ignore it.
Sub-heading: Options if You Struggle:
- Contact the IRS Immediately: The sooner you communicate with the IRS, the better. They may be able to adjust your payment amount or offer alternative solutions.
- Request a Revision: You can often revise your existing payment plan through the Online Payment Agreement tool to change the monthly payment amount or due date.
- Consider Other Options: If your financial situation has significantly deteriorated, you might need to explore an Offer in Compromise or Currently Not Collectible status, as discussed earlier.
10 Related FAQ Questions
Here are some common questions about IRS payment plans, with quick answers:
How to Check My IRS Tax Balance?
You can check your tax balance by creating or logging into your IRS online account at IRS.gov/account, or by referring to recent IRS notices.
How to Get My IRS Account Transcript?
You can request your tax transcript online, by mail using Form 4506-T, or by phone at 800-908-9946.
How to Reduce Penalties and Interest on My Tax Debt?
While interest generally cannot be waived, you may be able to request penalty abatement if you have a reasonable cause for failing to file or pay on time.
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How to Qualify for a Low-Income Payment Plan Waiver?
You may qualify for a waived or reduced setup fee if your adjusted gross income (AGI) falls below certain thresholds based on your family size. The IRS will often assess this automatically if you indicate low-income status on your application.
How to Make a One-Time Payment to the IRS?
You can make a one-time payment using IRS Direct Pay, Electronic Federal Tax Payment System (EFTPS), debit/credit card, or by check/money order.
How to Get Help with My Tax Debt from a Professional?
You can seek assistance from a tax professional such as a Certified Public Accountant (CPA), an Enrolled Agent (EA), or a tax attorney. The IRS also offers free tax help through its Low Income Taxpayer Clinics (LITCs).
How to Change My Payment Due Date on an Existing Plan?
You can often change your monthly payment due date through the IRS Online Payment Agreement tool or by contacting the IRS directly by phone.
How to Reinstate a Defaulted IRS Payment Plan?
If your payment plan defaults, you can generally apply to reinstate it through the Online Payment Agreement tool or by contacting the IRS. A reinstatement fee may apply.
How to Apply for an Offer in Compromise (OIC)?
To apply for an OIC, you'll generally need to submit Form 656, Offer in Compromise, along with detailed financial statements (Form 433-A (OIC) or 433-B (OIC)), and an application fee (unless waived for low-income).
How to Determine if Currently Not Collectible (CNC) Status is Right for Me?
CNC status is for taxpayers facing severe financial hardship. You'll need to demonstrate that paying your tax debt would prevent you from meeting basic living expenses. It's often recommended to consult a tax professional to determine if you qualify and to help with the application process.
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