Dealing with tax debt can feel overwhelming, but the good news is that the IRS offers various payment plans to help taxpayers manage their obligations. Ignoring the problem will only make it worse, leading to penalties, interest, and potentially more serious collection actions. The key is to be proactive and communicate with the IRS.
Are you currently facing a tax bill you can't pay in full? Don't panic! This comprehensive guide will walk you through the steps to get on a payment plan with the IRS, helping you find a manageable path forward.
Navigating Your Tax Debt: A Step-by-Step Guide to IRS Payment Plans
When you owe the IRS money but can't pay it all at once, you have several options to consider. Understanding these options is the first crucial step toward resolving your tax debt.
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| How To Get On A Payment Plan With The Irs |
Step 1: Understand Your Current Situation and Options
Before you can determine the best course of action, you need to have a clear picture of what you owe and what choices are available to you.
Sub-heading: Figure Out Exactly What You Owe
First things first, let's confirm your tax liability. Do you have an IRS notice or bill? If so, carefully review it. It will state the amount you owe, including any penalties and interest. If you're unsure of your exact balance or haven't received a notice, you can:
- Access Your IRS Online Account: This is one of the easiest ways to view your tax account balance, payment history, and details of any existing payment plans. You'll need to create an account if you don't already have one.
- Call the IRS: You can call the IRS directly at 1-800-829-1040. Have your Social Security Number and any relevant tax documents (like prior-year returns) ready.
- Consult a Tax Professional: A tax professional, such as a CPA or Enrolled Agent, can help you determine your exact tax liability and navigate the IRS system.
Sub-heading: Explore the Different Payment Plan Types
The IRS offers a few main types of payment plans, each designed for different financial situations:
Tip: Reread sections you didn’t fully grasp.
- Short-Term Payment Plan: This option gives you up to 180 days to pay your tax debt in full. While interest and penalties still accrue, it can provide a little breathing room if you know you'll have the funds soon. There is typically no setup fee for this plan.
- Installment Agreement (Long-Term Payment Plan): This is the most common option if you need more than 180 days. It allows you to make monthly payments for up to 72 months (6 years). You will still accrue penalties and interest, but this plan prevents more aggressive collection actions like liens or levies, as long as you adhere to the agreement.
- Streamlined Installment Agreements: If you owe $50,000 or less in combined tax, penalties, and interest, you generally qualify for a streamlined installment agreement, which means the IRS typically won't require a detailed financial statement.
- Offer in Compromise (OIC): An OIC allows certain taxpayers to settle their tax liability for less than the full amount owed. This option is generally considered when taxpayers are experiencing significant financial hardship and genuinely cannot pay their full tax debt. The IRS considers your ability to pay, income, expenses, and asset equity when evaluating an OIC.
- Currently Not Collectible (CNC) Status: If you're in a situation where paying your taxes would cause significant financial hardship (e.g., you can't afford basic living expenses), the IRS might temporarily delay collection activities. While in CNC status, you won't have to make payments, but penalties and interest will continue to accrue, and the IRS may review your financial situation periodically.
Step 2: Determine Your Eligibility and Gather Information
Once you understand the basic options, it's time to see which one fits your circumstances and gather the necessary documentation.
Sub-heading: Check Your Eligibility
- For Short-Term Payment Plans: You generally qualify if your total balance is less than $100,000 in combined tax, penalties, and interest.
- For Installment Agreements:
- Individuals: You usually qualify if you owe $50,000 or less in combined tax, penalties, and interest, and you have filed all required tax returns. For balances between $25,000 and $50,000, direct debit payments are required.
- Businesses: You may qualify if you owe $25,000 or less in combined tax, penalties, and interest from the current and preceding tax year, and you can pay within 24 months. Direct debit is required for balances between $10,000 and $25,000.
- Important Note: You must be current with all your tax filings. If you haven't filed all your returns, you'll need to do so before establishing a payment plan.
- For Offer in Compromise (OIC): This is a more complex option. The IRS has a pre-qualifier tool on its website to help you determine if you might be eligible. Generally, an OIC is accepted when there's doubt as to collectability (you genuinely can't pay the full amount) or doubt as to liability (there's a dispute about the amount you actually owe).
Sub-heading: Collect Your Financial Documents
Regardless of the payment plan you choose, the IRS will need to understand your financial situation, especially for installment agreements that aren't streamlined, or for OICs. Be prepared to provide:
- Income Information: Pay stubs, profit and loss statements (for self-employed), Social Security benefits, pension statements, etc.
- Expense Information: Monthly living expenses such as housing (rent/mortgage), utilities, food, transportation, medical expenses, and loan payments.
- Asset Information: Bank account statements, investment account statements, real estate property values, vehicle titles, etc.
- Tax Returns: Copies of your most recently filed tax returns.
- IRS Notices: Any correspondence you've received from the IRS.
Step 3: Apply for Your Payment Plan
Now that you're informed and prepared, it's time to submit your application.
Sub-heading: Online Payment Agreement (OPA) Application
For most taxpayers, the easiest and fastest way to set up a short-term payment plan or an installment agreement is through the IRS Online Payment Agreement (OPA) tool on IRS.gov.
- Visit IRS.gov/payments: Look for the "Online Payment Agreement" link.
- Create or Log In to Your Account: You'll need an IRS online account, which may require photo identification for verification.
- Follow the Prompts: The online tool will guide you through the process, asking for your personal and financial information. You'll receive immediate notification of whether your plan is approved.
- Set Up Direct Debit: For installment agreements, especially those over $25,000 (individuals) or $10,000 (businesses), the IRS encourages or requires direct debit payments from your bank account. This ensures timely payments and can sometimes reduce the setup fee.
Sub-heading: Applying by Mail (Form 9465)
If you prefer to apply by mail, or if you don't qualify for the online application (e.g., you owe more than the online limits), you'll need to use Form 9465, Installment Agreement Request.
QuickTip: Check if a section answers your question.
- Download Form 9465: You can find this form on the IRS website (IRS.gov).
- Complete the Form: Fill out all sections accurately and completely. You'll need to propose a monthly payment amount and a payment due date.
- Attach Necessary Documents: Depending on the amount you owe, you may also need to submit Form 433-F, Collection Information Statement, or Form 433-A (OIC) / 433-B (OIC) if applying for an Offer in Compromise. These forms require more detailed financial information.
- Mail Your Application: Send the completed forms to the IRS address specified in the instructions for Form 9465.
Sub-heading: Applying by Phone
You can also call the IRS directly to discuss payment options and potentially set up a plan over the phone.
- Individual Taxpayers: Call 1-800-829-1040.
- Business Taxpayers: Call 1-800-829-4933.
- Be Prepared: Have all your financial information readily available before you call, as the IRS representative will ask you questions about your income, expenses, and assets.
Sub-heading: Applying for an Offer in Compromise (OIC)
Applying for an OIC is a more involved process.
- Use the OIC Pre-Qualifier Tool: This online tool on IRS.gov can help you determine if an OIC is a viable option and estimate a preliminary offer amount.
- Download Forms 656 and 433-A (OIC) or 433-B (OIC): Form 656 is the Offer in Compromise application itself. Form 433-A (OIC) is for wage earners and self-employed individuals, and Form 433-B (OIC) is for businesses. These forms require extensive financial disclosures.
- Submit Your Application with Fees: An application fee and an initial payment (unless you meet low-income guidelines) are generally required when submitting an OIC.
- Consider Professional Help: Due to the complexity and strict requirements, many taxpayers choose to work with a tax professional when applying for an OIC.
Step 4: Maintain Your Payment Plan
Getting on a payment plan is just the first step. Staying compliant is crucial to avoid default and further IRS collection actions.
Sub-heading: Make Timely Payments
- Adhere to Your Agreement: Make sure your payments are sent on time and for the agreed-upon amount. If you set up direct debit, ensure sufficient funds are in your account.
- Payment Methods: The IRS offers various payment methods, including IRS Direct Pay (from your bank account), debit/credit card (through approved processors, fees apply), Electronic Federal Tax Payment System (EFTPS), and check/money order by mail.
Sub-heading: File All Future Tax Returns On Time
- Ongoing Compliance: A critical condition of any IRS payment plan is that you must continue to file all your tax returns on time in subsequent years.
- Pay New Taxes Due: You also need to pay any new tax liabilities in full by the due date. If you can't, you risk defaulting on your existing payment plan.
Sub-heading: Notify the IRS of Financial Changes
- Significant Changes: If your financial situation significantly changes (e.g., a large increase or decrease in income, a major unexpected expense), it's important to notify the IRS. They may adjust your payment plan accordingly. Ignoring changes could lead to difficulties in meeting your obligations or even a default.
- Modifying an Existing Plan: You can generally modify an existing installment agreement through your IRS online account or by calling the IRS.
Step 5: What if You Can't Meet Your Plan or Need Relief?
Life happens, and sometimes even the best-laid plans go awry. If you find yourself struggling to meet your payment plan obligations, don't despair, but act quickly.
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Sub-heading: Contact the IRS Immediately
- Proactive Communication: If you anticipate missing a payment or are struggling financially, contact the IRS before you default. They may be willing to work with you to modify your existing agreement or explore other options.
- Don't Just Stop Paying: Ceasing payments without communication will lead to penalties, interest, and the IRS resuming collection activities.
Sub-heading: Consider Penalty Abatement
While interest generally cannot be waived, the IRS may abate (remove or reduce) certain penalties under specific circumstances.
QuickTip: Reflect before moving to the next part.
- First-Time Penalty Abatement (FTA): If you have a good compliance history (no prior penalties for the past three years), filed all required returns, and paid or arranged to pay your tax, you may qualify for FTA for failure-to-file, failure-to-pay, and failure-to-deposit penalties.
- Reasonable Cause: You may also qualify for penalty relief if you can show you had a reasonable cause for not meeting your tax obligations (e.g., serious illness, natural disaster, death in the family). This requires a detailed explanation and supporting documentation.
- How to Request Abatement: You can request penalty abatement by calling the IRS or by filing Form 843, Claim for Refund and Request for Abatement.
Sub-heading: Appealing IRS Decisions
If the IRS denies your payment plan request, terminates an existing agreement, or takes an action you disagree with, you generally have appeal rights.
- Collection Appeals Program (CAP): You can appeal certain collection actions (like the rejection or termination of an installment agreement) through the Collection Appeals Program (CAP) by filing Form 9423, Collection Appeal Request, within 30 days of the IRS action.
- Collection Due Process (CDP) Hearing: If the IRS issues a Notice of Intent to Levy or a Notice of Federal Tax Lien, you have the right to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals. This is a formal appeal process.
Related FAQ Questions
Here are 10 frequently asked questions about IRS payment plans, with quick answers:
How to qualify for an IRS payment plan?
Generally, individuals qualify for an installment agreement if they owe $50,000 or less in combined tax, penalties, and interest, and businesses if they owe $25,000 or less. You must also be current with all your tax filings.
What are the steps to set up an IRS installment agreement?
The steps include understanding your tax liability, determining eligibility, gathering financial documents, and applying online via the IRS Online Payment Agreement (OPA) tool, by mail with Form 9465, or by phone.
How to apply for an Offer in Compromise with the IRS?
You can apply for an OIC by using the IRS OIC pre-qualifier tool, then submitting Form 656 and detailed financial information (Form 433-A OIC or 433-B OIC) with any required fees.
QuickTip: Slow down if the pace feels too fast.
How to get a short-term payment plan with the IRS?
You can request a short-term payment plan (up to 180 days) through the IRS Online Payment Agreement tool if you owe less than $100,000, or by calling the IRS.
How to appeal an IRS payment plan denial?
You can appeal a denial or termination of an installment agreement by filing Form 9423, Collection Appeal Request, within 30 days of the IRS's decision.
How to reduce penalties and interest on IRS payment plans?
While interest usually cannot be waived, you may qualify for penalty abatement under the First-Time Penalty Abatement policy or if you can demonstrate reasonable cause for non-compliance. You can request abatement by calling the IRS or filing Form 843.
How to manage an existing IRS payment plan?
You manage an existing plan by making timely payments, filing all future tax returns on time, paying any new tax liabilities in full, and notifying the IRS of significant financial changes. You can often manage or modify your plan through your IRS online account.
How to find out if I owe the IRS?
You can find out if you owe the IRS by accessing your IRS online account, reviewing any notices or bills received from the IRS, or by calling the IRS directly at 1-800-829-1040.
How to contact the IRS about payment options?
You can contact the IRS about payment options by visiting IRS.gov/payments, using the IRS Online Payment Agreement tool, or calling the IRS at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses).
How to avoid IRS tax liens and levies?
The best way to avoid tax liens and levies is to file all your tax returns on time and pay your taxes in full when due. If you can't pay, proactively setting up a payment plan with the IRS, such as an installment agreement, can prevent these collection actions.
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