How To Make A Payment Plan With Irs

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Feeling a knot in your stomach about that tax bill you can't quite pay? You're not alone. Many individuals and businesses find themselves in a similar situation, and the good news is, the IRS understands. They offer various payment options to help you get back on track. This comprehensive guide will walk you through the process of setting up a payment plan with the IRS, step-by-step, to alleviate that financial burden.

Step 1: Don't Panic – Assess Your Situation!

Before you do anything else, take a deep breath. The worst thing you can do is ignore the problem. The IRS generally works with taxpayers who are making an effort to resolve their debt.

a. Understand Your Debt

What exactly do you owe? Locate any notices or bills you've received from the IRS. These will clearly state the amount of tax, penalties, and interest you owe.
What tax year(s) are involved? Knowing the specific tax periods is crucial for any payment arrangement.
Have you filed all required returns? The IRS generally requires you to be current on all your tax filings to qualify for a payment plan. If you haven't filed, that's your first priority.

b. Know Your Options (Broadly)

The IRS offers several avenues for taxpayers who can't pay in full immediately. It's important to understand the distinctions as they have different eligibility requirements and implications:

Short-Term Payment Plan: This allows you up to 180 days to pay your tax liability in full. Interest and penalties still apply, but it's a good option if you anticipate receiving funds soon (e.g., a bonus, inheritance).
Installment Agreement (Long-Term Payment Plan): This is a monthly payment plan for up to 72 months (6 years). This is the most common option for those who need more time.
Offer in Compromise (OIC): This allows certain taxpayers to settle their tax debt for less than the full amount owed. This is generally for those in extreme financial hardship where paying the full amount would create an economic burden.
Currently Not Collectible (CNC) Status: If you genuinely cannot afford to pay any of your tax debt due to financial hardship, the IRS may temporarily delay collection until your financial situation improves.

For the purpose of this guide, we will focus primarily on setting up an Installment Agreement, as it's the most common solution.

Step 2: Gather Your Financial Information

The IRS needs a clear picture of your financial situation to determine a fair payment plan. Be prepared to be transparent and accurate.

a. Personal Information

Your Social Security Number (SSN) or Taxpayer Identification Number (TIN)
Your address and contact information (phone number, email)
Your filing status (Single, Married Filing Jointly, etc.)

b. Income Details

Pay stubs, W-2s, 1099s, or other proof of income for yourself and your spouse (if filing jointly).
Information on any other income sources (rental income, investments, self-employment income, etc.).

c. Expense Documentation

Monthly living expenses: This includes rent/mortgage, utilities (electricity, gas, water), groceries, transportation, insurance, medical expenses, and other necessary household costs.
The IRS has established National and Local Standards for certain expenses. While you can provide your actual expenses, the IRS may use these standards to determine your allowable expenses. It's good to be aware of them.

d. Asset Information

Bank account statements (checking, savings)
Investment account statements
Information on real estate you own (property value, mortgage balance)
Vehicle information (make, model, year, loan balance)
Retirement account balances

Step 3: Choose Your Application Method

The IRS offers several convenient ways to apply for a payment plan.

a. Online Payment Agreement (OPA) Tool – The Easiest Option!

Eligibility:
- Individuals: You owe $50,000 or less in combined tax, penalties, and interest, and you have filed all required returns.
- Businesses (sole proprietors/independent contractors apply as individuals): You owe $25,000 or less in combined tax, penalties, and interest from the current and preceding tax year, and you have filed all required returns.
Benefits:
- Instant approval (in most cases).
- Lower setup fees compared to phone or mail applications.
- You can set up a Direct Debit Installment Agreement (DDIA), which automatically deducts payments from your bank account, often with a reduced setup fee.
- You can easily manage your existing agreement online (change payment amount/date, update bank info, reinstate).
How to Apply:
- Visit the IRS website (IRS.gov) and search for "Online Payment Agreement."
- You'll likely need to create or log in to your IRS Online Account using ID.me for identity verification. This may involve providing a photo ID and a video selfie. Don't skip this step, it's crucial for secure access.
- Follow the on-screen prompts to input your information and propose your monthly payment.

b. By Phone

You can call the IRS directly to discuss your options and set up a payment plan.
Individuals: Call 1-800-829-1040.
Businesses: Call 1-800-829-4933.
Have all your financial information ready before you call.
Be prepared for potential wait times, especially during peak tax season.

c. By Mail (Form 9465)

If you're not eligible for the online tool or prefer to apply by mail, you can submit Form 9465, Installment Agreement Request.
This form is straightforward and asks for your basic information, the amount you owe, and your proposed monthly payment.
When to include Form 433-F: If you owe more than $50,000 (as an individual) or $25,000 (as a business), or if the IRS requires more detailed financial information, you may need to attach Form 433-F, Collection Information Statement. This form is more extensive and requires a detailed breakdown of your income, expenses, and assets.
Mail your completed forms to the address listed in the form instructions.

Step 4: Proposing Your Payment Amount

This is where you determine what you can realistically afford.

a. The 72-Month Rule (for Installment Agreements)

Generally, the IRS expects you to pay off your tax debt within 72 months (6 years).
A simple calculation to estimate your minimum monthly payment is to divide your total debt by 72. For example, if you owe $12,000, your estimated minimum monthly payment would be $12,000 / 72 = $166.67.
However, this is just a starting point. The IRS will consider your ability to pay.

b. Be Realistic About Your Budget

Go through your monthly income and expenses meticulously.
Determine a payment amount that you can consistently afford without undue financial hardship. It's better to propose a slightly lower, sustainable payment than a high one you can't maintain.
Remember, interest and penalties will continue to accrue on the unpaid balance until it's paid in full, so paying it off as quickly as possible is beneficial.

c. What if You Can't Afford the Minimum?

If your financial situation is such that you cannot afford the standard 72-month payment, or even a short-term plan, you might explore a Partial Payment Installment Agreement (PPIA) or Offer in Compromise (OIC).
For these, you will almost certainly need to provide detailed financial statements (Form 433-A or 433-F) to justify your proposed lower payment. The IRS will review your "reasonable collection potential."

Step 5: Understanding Fees, Penalties, and Interest

While a payment plan offers relief, it's not without cost.

a. Setup Fees

Online Payment Agreement (Direct Debit): Typically the lowest setup fee (e.g., $22).
Online Payment Agreement (Other Payment Methods): A higher fee (e.g., $69).
Phone/Mail Application (Direct Debit): Higher than online (e.g., $107).
Phone/Mail Application (Other Payment Methods): Highest fees (e.g., $178).
Low-income taxpayers may have fees waived or reimbursed. Be sure to check the specific criteria on the IRS website or form instructions.

b. Interest

Interest accrues daily on any unpaid tax from the original due date until the balance is paid in full.
The interest rate is adjusted quarterly and is generally the federal short-term rate plus 3%. This can add up significantly over time.

c. Penalties

Failure-to-Pay Penalty: This is typically 0.5% of the unpaid taxes for each month or part of a month the taxes remain unpaid, up to a maximum of 25%.
If you enter into an installment agreement, this penalty may be reduced to 0.25% per month for any month the agreement is in effect.
Failure-to-File Penalty: This is generally 5% of the unpaid taxes for each month or part of a month your return is late, up to a maximum of 25%. It's crucial to file on time, even if you can't pay.
Penalty Relief: In some cases, the IRS may abate (remove) penalties if you can show reasonable cause and that the failure wasn't due to willful neglect. This is separate from setting up a payment plan.

Step 6: What Happens After You Apply?

a. Approval Notification

Online: You usually receive immediate notification of approval or denial.
Mail/Phone: The IRS will typically notify you within 30 days.

b. Making Payments

Direct Debit (Recommended): Your monthly payments are automatically withdrawn from your checking or savings account on the agreed-upon date. This is the most hassle-free method and often has a lower setup fee.
IRS Direct Pay: Make payments directly from your bank account for free on the IRS website.
Electronic Federal Tax Payment System (EFTPS): A free service for individuals and businesses to make federal tax payments electronically. Enrollment is required.
Debit/Credit Card: You can pay through third-party payment processors, but fees apply.
Check or Money Order: Mail your payments to the IRS with a payment voucher.

c. Staying in Compliance

Once your payment plan is approved, it's critical to adhere to the terms.
Make all your monthly payments on time.
File all future tax returns on time.
Pay all future taxes when due.
Failure to comply can result in the default of your installment agreement, and the IRS may resume more aggressive collection actions.

Step 7: Monitoring and Modifying Your Agreement

Your financial situation can change, and the IRS understands that.

a. Online Account

Use your IRS Online Account to view your balance, payment history, and details of your payment plan.
You can also modify certain aspects of your agreement through the online tool, such as changing your monthly payment amount, due date, or bank information for direct debit.

b. Contact the IRS if Needed

If you experience a significant change in your financial situation that affects your ability to make payments, contact the IRS immediately.
They may be able to adjust your payment amount or explore other options. Ignoring the problem will only make it worse.

Related FAQ Questions (How to...)

How to know if I qualify for an IRS payment plan?
- You generally qualify for an online installment agreement if you owe $50,000 or less (individuals) or $25,000 or less (businesses) in combined tax, penalties, and interest, and have filed all required returns. For other options like Offer in Compromise, eligibility depends on your financial hardship.
How to find out how much I owe the IRS?
- You can check your balance by logging into your IRS Online Account at IRS.gov/account, referring to any notices or bills from the IRS, or requesting an account transcript.
How to reduce the setup fee for an IRS payment plan?
- Applying for an installment agreement online and choosing the Direct Debit option typically incurs the lowest setup fee. Low-income taxpayers may have fees waived or reimbursed.
How to avoid penalties and interest when I can't pay my taxes?
- While you can't completely avoid interest if you don't pay on time, filing your return by the deadline and paying as much as you can will minimize failure-to-file penalties. Entering into an installment agreement can reduce the failure-to-pay penalty.
How to change my monthly payment amount on an existing IRS payment plan?
- You can typically change your monthly payment amount through the IRS Online Payment Agreement tool if you have an existing agreement. Alternatively, you can call the IRS or send a written request.
How to switch my payment method to Direct Debit for an existing plan?
- You can convert an existing installment agreement to a Direct Debit agreement through the IRS Online Payment Agreement tool, or by contacting the IRS directly.
How to appeal a rejected IRS payment plan request?
- If your payment plan request is denied, the IRS will send you a notice explaining the reason and your appeal rights. You generally have 30 days to appeal the decision.
How to get help if I'm struggling with severe tax debt and can't afford a payment plan?
- If you're experiencing severe financial hardship, you might explore an Offer in Compromise (OIC) or request "Currently Not Collectible" status. It's often advisable to consult with a tax professional or low-income taxpayer clinic in these situations.
How to confirm my payment was received by the IRS?
- You can check your payment history and current balance through your IRS Online Account. For electronic payments, you'll usually receive a confirmation number. You can also verify with your bank.
How to avoid getting into tax debt again in the future?
- Review your tax withholding (Form W-4) regularly to ensure enough tax is being withheld from your pay. Make estimated tax payments if you have self-employment income or other income not subject to withholding. Budget carefully and save for your tax obligations.

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