IRS Payment Plan: How It Works & How to Apply
The IRS payment plan, often referred to as an installment agreement or a tax payment plan, is a financial arrangement designed to assist individuals and businesses in meeting their federal tax obligations over time. This option is offered by the Internal Revenue Service (IRS) to help taxpayers who may be unable to pay their tax liabilities in a lump sum. Whether you’re facing financial hardship, unexpected expenses, or simply need more time to settle your tax debt, an IRS payment plan can provide a structured and manageable way to resolve your tax obligations while avoiding the potential consequences of unpaid taxes.
Short-term vs. long-term IRS payment plan
The IRS offers two primary types of payment plans to help taxpayers manage their tax debts: short-term and long-term payment plans. Short-term plans are typically designed for those who can pay off their tax liability within 120 days, while long-term plans offer more extended periods for those who need additional time. Short-term plans don’t require a setup fee but must be paid in full within the 120-day period. In contrast, long-term plans come with a setup fee and allow taxpayers to pay their debt over an extended period, which could be several months or even years, depending on the individual’s financial situation. Choosing between these two options largely depends on your ability to pay and the time needed to settle your tax debt while staying compliant with the IRS.
Who is eligible for an IRS payment plan or installment agreement?
Eligibility for an IRS payment plan or installment agreement is generally available to individuals and businesses who owe federal taxes but are unable to pay the full amount by the due date. To qualify for an IRS payment plan, you typically need to meet certain criteria, which may include:
- Tax Debt Amount: You must owe a certain minimum amount in federal taxes to be eligible for a payment plan.
- Filing Status: You must be current with your tax return filings. This means you should have filed all required tax returns for previous years.
- Financial Ability: The IRS will assess your financial situation to determine your ability to pay. This includes considering your income, expenses, and assets. They may ask for detailed financial information to make this assessment.
- Compliance: While on a payment plan, you must continue to file your tax returns and pay any future taxes owed in a timely manner to remain in good standing with the IRS.
- Previous Payment Plans: If you’ve had a previous payment plan with the IRS and defaulted on it, it may affect your eligibility for a new plan.
- Bankruptcy or OIC: If you’ve filed for bankruptcy or submitted an Offer in Compromise (OIC), this might affect your eligibility for an installment agreement.
- No Ongoing Audits or Investigations: If the IRS is currently auditing your tax return or investigating you for potential tax fraud or evasion, you may not be eligible for an installment agreement until these matters are resolved.
It’s important to note that there are different types of installment agreements, such as streamlined and non-streamlined plans, and the eligibility criteria may vary slightly.
How to apply for an IRS payment plan
You can apply for an IRS payment plan in several ways. Here are a few:
The easiest and quickest method is to apply online using the IRS’s Online Payment Agreement tool. Here’s how to do it:
- Visit the IRS website (irs.gov) and search for “Online Payment Agreement.”
- Select the “Apply for a Payment Plan” option.
- Follow the instructions and provide the necessary information, including your tax details and proposed payment terms.
- The system will review your application and, in many cases, provide an immediate response regarding your eligibility.
If you prefer to apply over the phone, you can contact the IRS at 1-800-829-1040. You’ll need to provide your tax information and discuss your financial situation with an IRS representative. They will guide you through the process and help set up a payment plan.
You can also apply by submitting Form 9465, Installment Agreement Request, by mail. Here’s how:
- Download Form 9465 from the IRS website.
- Fill out the form with your tax details and proposed payment terms.
- Mail the completed form to the address provided on the form’s instructions.
- Note that this method may take longer for the IRS to process compared to online or phone applications.
Minimum monthly payments for IRS installment plan
The minimum monthly payment for an IRS installment plan can vary depending on several factors. The IRS will typically consider your financial situation and the total amount you owe when determining the minimum payment. Here are some general guidelines:
- Short-Term Payment Plan: If you qualify for a short-term payment plan (paying off your tax debt within 120 days), there is generally no specific minimum monthly payment required. However, you must pay the full amount within the 120-day period.
- Long-Term Payment Plan: For long-term installment agreements, the minimum monthly payment is typically based on the amount you owe and the length of the plan. The IRS will use a formula to calculate your minimum payment. The general rule is that the minimum monthly payment should be enough to pay off your tax debt within 72 months (6 years) or before the collection statute expiration date (CSED), whichever comes first.
- Streamlined Installment Agreements: The IRS offers streamlined installment agreements for taxpayers who owe less than $50,000 in combined tax, penalties, and interest. Under this program, the IRS does not require a financial statement, and you can propose your monthly payment amount. The IRS will usually accept your proposed payment as long as it pays off the debt within the time frame they set, which is typically 72 months.
- Low-Income Taxpayers: Low-income taxpayers may qualify for reduced minimum monthly payments under certain circumstances. The IRS has guidelines for this, and you would need to provide financial information to demonstrate your low-income status.
It’s important to note that the IRS may consider your financial situation, including your income, expenses, and assets, when determining the minimum payment. Learn more about the IRS Partial Payment Plan.
Looking for tax relief?
IRS payment plans are sometimes difficult to negotiate because of the hesitancy by the IRS to grant them or even consider them as an option. At CuraDebt Tax, we have a team of tax professionals who are able to find the best IRS resolution available to you. Contact us to better understand your tax problems and to choose the best IRS resolution option.
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