Tax Solutions

Payment Plans

Finding out you owe the IRS more than you expected is never the position you’d like to be in – especially if you can’t pay the balance due in full.

Consider an IRS payment plan once you understand your options.

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“If you’re not able to pay the entire amount you owe in back taxes, the IRS will work with delinquent taxpayers to set up payment plans – also called installment agreements – designed to give you flexibility to pay a smaller, more manageable amount every month.”

- Alyssa Maloof Whatley

Woman resolving her taxes on her laptop with a tax lawyer

How Can I Get An IRS Payment Plan?

The terms available to you are based on the amount you owe, your record of compliance with the IRS, and your financial situation.

Before you enter into a payment agreement with the IRS, it’s a smart move to speak to a tax expert who can review your situation and make sure that whatever agreement you enter into with the IRS is part of a comprehensive long-term strategy.

Payment plans options with the IRS typically reflect the total amount due to the agency and how quickly the debt can be satisfied:

If you owe $10,000 or less and believe you can pay in full in 36 months. The IRS will likely offer you a Guaranteed Installment Agreement.

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Easiest to qualify for

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Limits you to one payment plan in a 5 year period

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Availability also limited to taxpayers in compliance – returns filed and taxes due paid in full – in the previous 5 years

If you owe $50,000 or less and need up to six years to pay, you can enter into a Streamlined Direct Debit Installment Agreement (a.k.a. the IRS Fresh Start Program), without providing a financial statement and avoid the filing of any federal tax liens if the agreement is set up prior to the filing of the tax liens.

What are my payment plan options?

The IRS also has a newer program, where they are allowing people that owe less than $250,000 to set up an installment agreement for as many months that are left in the Collection Statute Expiration Date (“CSED”) without providing a financial statement. This can be great for high-income earners or those with lots of equity in assets that do not want to provide a financial statement.

Partial Payment Installment Agreements are available, but it's notoriously difficult to qualify for – and to ensure they receive payment, the IRS will place a lien on your personal or business assets to secure the debt. However, this particular program is highly underutilized by the majority of taxpayers as they do not understand the benefits. The greatest benefit of a partial pay installment agreement is it allows you to make affordable payments to the IRS, stay in good standing to avoid collection activity while the statute is running on the collection of the debt.

What does this translate to? It essentially allows a taxpayer to end up paying less than they actually owe because the plan will not pay off the debt in full before the debt expires.

“If you owe $250,000 or more, you’ll need to submit a financial statement to the IRS to determine your ability to pay.”

- Alyssa Maloof Whatley

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Is a partial payment plan available?

While you’re in a repayment agreement with the IRS, you’ll need to make all your payments on time. They’ll also apply any tax refunds to your outstanding tax debt.

If you find yourself owing a big tax bill, before you enter into any agreement with the IRS, speak to a tax professional who can assess your financial situation, review your tax returns and documentation, and make sure that you take the necessary steps to deal with your tax debt.

What’s the interest rate on an IRS payment plan?

Under the IRS Code, the interest rate for individual taxpayers (not corporations) is the federal short-term rate + 3%. The rate of interest is determined on a quarterly basis.

From left to right, Alyssa Maloof Whatley, Harrison Kulp, and Kiara Maxie

Is there a monthly minimum I have to pay the IRS each month?

Your favorite lawyer answer… It depends.

If you are in a full pay installment agreement (short term - full pay 180 day extension, guaranteed installment agreement (60 month term), 72 month installment agreement, or CSED installment agreement) the amount you pay is based on the amount owed divided by the number of months left in the CSED for each year or the amount of months allowed in type of installment agreement you are in, which ever is earlier. In each full pay scenario you have to pay off the debt in full before the statute expires.

While you’re in a repayment agreement with the IRS, you’ll need to make all your payments on time. They’ll also apply any tax refunds to your outstanding tax debt.

If you find yourself owing a big tax bill, before you enter into any agreement with the IRS, speak to a tax professional who can assess your financial situation, review your tax returns and documentation, and make sure that you take the necessary steps to deal with your tax debt.

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Pro Tip:

How partial pay agreements work

If you enter into a partial pay agreement or currently non-collectible status (“CNC”), the amount you pay is equal to your income minus your necessarily living expenses = X. If X is $150, then that is the amount you will pay. If X is $0, the IRS will place you in currently non-collectible status which is where the IRS places you in a financial hardship and does not expect monthly payments at all on your past due liability.

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Who is eligible for a payment plan with the IRS?

In order to be eligible for an installment agreement, you must be in tax compliance. This means that generally last six years of returns are filed and you have corrected the issue that caused the liability (i.e. adjusted your withholdings if you are in employee or started making estimated tax payments if you have pass through income or self-employed). Then, which payment plan you qualify for is based on the amount you owe and your ability to pay.

Are there additional fees on an IRS payment plan?

There are additional fees to set up an installment plan. They’re calculated based on how long it will take you to pay off your debt, how you set up your installment plan with the IRS, and your financial status. Low-income taxpayers may be able to have some of the associated fees reduced.

If you pay your installment using a credit card, the IRS will charge additional processing fees.