Ways to Settle Your Tax Debt (Part 1): Payment Plans

Is your tax debt more than you can afford? Not sure what to do?

Dealing with the IRS can be stressful. You keep getting notices. You know interest and penalties are piling up. You’re not sure what to do.

Here’s some good news…The IRS is willing to work with you. 

For example, payment plans (sometimes known as an installment agreement) allow you to pay off tax debt in more manageable bites. 

There are a couple different IRS payment plan options to consider. Let’s take a closer look at each option, discover if you’re eligible, and find out how to apply for an installment agreement.

IRS Payment Plans

A payment plan is an agreement with the IRS to pay tax debt within a certain time frame. If you believe you can pay all your tax debt within that time period, consider applying for a payment plan. 

Here are some options:

Pay Now

If you have the resources to pay your entire tax debt, this is probably your best option. It may temporarily put a strain on your budget, but you won’t have to deal with any additional expenses compared to other payment plans.

If you choose to pay now, there will be NO setup fee, extra penalties, or accrued interest.

Pay the full amount you owe from a checking or savings account with Direct Pay. You can also pay by check, money order, or debit/credit card. Extra fees are applied when using a credit/debit card.

Extra bonus: Your tax debt is settled…no more dealing with the IRS!

Short-Term Payment Plan

You may be eligible to apply online for a short-term payment plan if you owe less than $100,000 in combined tax, penalties, and interest.  

If you think you can pay your tax debt in 120 days or less, you may be eligible to apply for a short-term payment plan online.

If you need a little extra time (between 120 and 180 days) you can apply by phone, mail, or in-person.

Short-term payment plans have no setup fee. You will, however, be charged accrued penalties and interest until the balance is paid in full.

Long-Term Payment Plan

Long-term installment agreements give you two options to pay monthly. You may be eligible to apply online if you owe $50,000 or less in combined tax, penalties, and interest. You also need to have all your tax returns filed.

Paying with Automatic Withdrawals

You can save a little money if your long-term payment plan is automatically withdrawn from a bank account (Direct Debit). 

The setup fee for an automatic withdrawal long-term payment plan is $31 if you apply online ($107 if you apply by phone, mail, or in-person).
This fee may be waived if you qualify for Low Income Taxpayer Status.

Paying without Automatic Withdrawals 

If you choose to pay each month without automatic Direct Debit–like check, money orders, credit/debit cards or non-automated transfers through your bank account, the setup fee will cost extra.

If you apply online for pay each month (non-Direct Debit) the setup fee is $149. Those applying by phone, mail, or in-person will be charged a $225 setup feel. 

Those meeting the Low Income Taxpayer Status have a reduced ($43) setup fee which may later be reimbursed if certain conditions are met.

As will all payment plans, you will also be responsible for paying accrued penalties and interest until the balance is paid in full.

Applying for a Payment Plan

Starting November 14, 2021, IRS usernames that were only used to access payment plans (Online Payment Agreement) won’t work anymore. You need to create an account with ID.me. A photo ID is necessary to finish creating the account.

Also, if you plan on applying for the direct debit payment plan, you will need your bank account and routing numbers.

Finally, if you recently filed a tax return but did not receive a balance notice from the IRS, you will need to provide the balance due shown on your tax return.

Apply online at the IRS’s Apply Online for a Payment Plan page. 

If the Online Payment Agreement tool determines you are not eligible to apply online, you may still be able to apply by mail, phone, or in-person.

To apply by mail, complete Form 9465, Installment Agreement Request. You may also have to include Form 433-F, Collection Information Statement. Do not send original documents to the IRS. Make copies of your entire application packet for your records.

Once that is done, mail the application packet. The correct address depends on the state you live in. Here is an IRS resource to help you find the appropriate address.

If you want to apply by phone, call (800) 829-1040. 

Not sure if a payment plan is right for you? Other options are available. Part 2 of this series talks about settling for less than you owe with an Offer in Compromise.

Keep Your Installment Agreement in Good Standing

It’s very important that you make at least your minimum monthly payments on time. This prevents your plan from going into default. 

You must also file all your tax returns on time. If you owe money on new tax returns, this must be paid in full and on time.

Also note, any future tax refunds will be applied to your tax debt. Don’t count this as one of your installment payments. Keep making all scheduled payments regardless of any refunds you are due to receive. 

If you move, be sure to let the IRS know by filling out and mailing Form 8822, Change of Address.

Ready to Set Up Your Payment Plan?

This resource gives you the information you need for setting up your payment plan. But…

You may feel a little reluctant to do this on your own. After all, this is a lot of information to take in. You want to make sure you do this right so you can finally settle your tax debt.

What do people do when they don’t want to deal with the IRS directly? 

Many individuals who are too confused, overwhelmed–or just have other things they need to do–choose to get a power of attorney to handle tax issues and payment plans.

Tax relief professionals can take a look at your specific situation and make suggestions on the best way to handle your tax debt. The team at Confidential Tax Relief helps those struggling with tax issues everyday. We know the complex tax laws and codes–and we can use them to work for you.  

For example, if the IRS computes a payment amount that is more than you can afford to pay, one of our tax professionals can step in to negotiate a more reasonable payment based on your obligations and expenses. 

Ready to finally be finished with your tax issues? Start by scheduling a phone consultation with the Confidential Tax Relief team today.