If you cannot pay your tax bill in full, the IRS offers payment plans. Setting one up can stop most enforced collection and reduce the failure-to-pay penalty. Here is how they work.
1. Short-term payment plans
If you can pay the full balance within 180 days, you may qualify for a short-term payment plan. There is generally no setup fee, though penalties and interest continue to accrue until the balance is paid.
2. Long-term installment agreements
If you need more time, a long-term installment agreement lets you make monthly payments. Individuals who owe $50,000 or less in combined tax, penalties, and interest, and who have filed all required returns, can generally apply online through irs.gov. Setup fees vary depending on how you apply and pay, and may be reduced for low-income taxpayers.
3. Larger balances
If you owe more than the online threshold, or the IRS needs more information, you may be asked to provide a detailed Collection Information Statement listing your income, expenses, and assets. The IRS uses that information and its own expense standards to decide what monthly payment you can afford.
4. What a payment plan does and does not do
While an installment agreement is in effect, the IRS generally will not levy your wages or bank accounts. If you filed your return on time, the failure-to-pay penalty rate is generally reduced while the agreement is in effect. Interest continues to accrue, and the IRS may still file a federal tax lien.
5. Staying in good standing
To keep the agreement, you must make every payment on time and file and pay all future tax returns on time. Missing payments or incurring new balances can cause the agreement to default, and the IRS may resume collection.
6. If the IRS rejects or ends your agreement
If the IRS rejects a proposed installment agreement or terminates an existing one, you can generally appeal through the IRS Collection Appeals Program. An attorney can also help negotiate a more realistic payment amount.
Tips before setting up a payment plan
- File all required tax returns first; the IRS requires it.
- Choose a monthly payment you can actually keep up with.
- Pay by direct debit if possible to avoid missed payments and reduce fees.
- Adjust your withholding or estimated payments so you do not owe again next year.
- If your finances change, contact the IRS before you miss a payment.
Get help from someone who has seen it from the inside
Bernie McCarthy has negotiated with the IRS from both sides of the table. He can help you choose the right payment option and negotiate an agreement that fits your budget. Learn more about our installment agreements services.
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This article provides general information, not legal advice for your situation.