Have you received a Notice of Deficiency from the IRS? Taxpayer debt is not an uncommon situation. Many American taxpayers have found themselves in debt with the IRS and feel unsure where to turn. Taxpayers who remain in debt for an extended period of time can face tax liens and levies. It’s a very difficult place to be in, both financially and emotionally.
Fortunately, the IRS offers solutions to indebted taxpayers who cannot afford to immediately pay off their debt. For many taxpayers, the best solution to tax debt is an IRS payment plan.
The IRS tax payment plan allows taxpayers who owe the federal government to pay back the amount they owe over a period of time without the threat of increased collection actions. The IRS allows several types of IRS tax payment plans, including:
- Guaranteed installment agreement plan
- Streamlined installment agreements
- Stair-step installment agreements.
- Offer in compromise resolutions
- Partial payment installment agreements
Selecting the IRS payment plan that best suits your needs depends on your owed tax amount, your financials, and more. IRS tax payment plans are divided into two general categories: short-term and long-term payment plans.
Short-term IRS Payment Plan
A short-term payment plan allows the taxpayer to pay off IRS debt in 120 days or less. It is available to taxpayers who owe $100,000 or less. Regular payments can be made via automatic withdrawal, check, money order, or debit or credit card.
Long-term IRS Payment Plans
Any payment plan over 120 days is considered a long-term payment plan. There are many different types of short-term IRS payment plans, each suited to a specific debt amount and payment terms.
Guaranteed Installment Agreement
Those who owe $10,000 or below will automatically qualify for a long-term tax payment plan known as a guaranteed installment agreement (GIA), which gives the taxpayer 36 months to pay off their debt. In order to qualify for a guaranteed installment agreement, a taxpayer must:
- Owe $10,000 or less in tax debt before any additional penalties or taxes
- Have a history of both filing and paying taxes on time over the prior 5 years
- Not have a history of installment agreements over the prior 5 years
- Be unable to currently pay the entire tax amount
- Agree to pay the entire tax amount, plus penalties and interest, over the course of the next 3 years
- Agree to pay all installment payments on-time
- Agree to file and pay all future taxes on time
If any of the above criteria are not met, the IRS may reject your request for a guaranteed installment agreement. Furthermore, if payments are not paid on time, the IRS may immediately terminate your guaranteed installment agreement.
If a guaranteed installment agreement is enacted, there may or may not be a lien that is placed against you. It is up to the discretion of the person who has approved your installment agreement.
How to Request a Guaranteed Installment Agreement
You may request a guaranteed installment agreement with the IRS online, via mail, or by phone.
- Online: Apply for an individual payment plan on the IRS website using the IRS Online Payment Agreement Application. You may be required to pay set up fees based on your financials and method of payment.
- By phone or mail: In order to apply for a Guaranteed Installment Agreement by mail or phone, you’ll need to fill our Form 9465, the Installment Agreement Application. This can either be printed out, or you can call the IRS at 1-800-829-1040 and request that they send you a copy of the form. You can find more information on that below.
Along with the application, you’ll need to provide a copy of your tax return. Both should be mailed to the address listed on the form.
- Note that setup fees may be higher if you request by mail or phone. An online request is the cheapest option.
Streamlined Installment Agreement
If your debt amount is between $10,000 and $25,000, you may qualify for a streamlined installment agreement (SIA) with the IRS. This federal tax payment plan is paid over the course of 72 months. Just like guaranteed payment plans, streamlined payment plans do not require the verification of your financials in order to qualify. To qualify, you must:
- Owe less than $25,000 in combined tax debt, interest, and penalties.
- Be up to date on all past tax returns; any unfiled returns must be filed before proceeding
- Not have a history of installment agreements over the past 5 years
- Not be filing for bankruptcy
If you do qualify for a streamlined payment plan, you’ll need to pay off your debt in installments over the course of 6 years. Again, a lien may be placed against you according to the discretion of your IRS representative.
How to Request a Streamlined Installment Agreement
Once you’ve verified you meet the above requirements, you can apply for a streamlined installment agreement online, via mail, or by phone, using the above instructions. All streamlined installment agreements include a setup fee according to the method through which they are applied, as well as the payment method.
IRS Payment Plans Over $50,000
If you owe more than $50,000, you may qualify for a Streamlined Processing Payment Plan, an IRS pilot program that allows you to pay over the course of 84 months. This application cannot be done online; it must be completed by mail or phone, via Form 9465 and Form 433-F. On that, you’ll need to provide the following information:
- Lines of credit
- Bank, retirement, and other accounts
- Real estate
- Other Assets
You’ll also need to provide details on your employment, monthly income, and living expenses.
IRS Business Payment Plan
There is an IRS tax payment plan for small businesses. If your company is struggling and you owe an outstanding balance to the IRS, this may be a good option to pursue.
Any business that owes $25,000 or less in back taxes can request what’s called an In-Business Trust Fund Express installment agreement. While this type of IRS tax payment plan doesn’t require a financial statement, your business must currently have employees on its roster. This installment agreement gives businesses a 24-month period to fully pay the outstanding balance.
If the amount owed is less than $25,000 but more than $10,000, the business must set up a Direct Debit installment agreement. Businesses may apply online or over the phone.
About IRS Form 9465
IRS Form 9465, otherwise known as the Installment Agreement Request, is the paper form through which in debt taxpayers can apply for an IRS installment agreement.
Form 9465 allows you to calculate your minimum monthly payments (your total debt amount divided by 72 months), as well as your desired monthly payments (the largest monthly payment you can afford each month).
Why both numbers? Remember that you will continue to accrue interest and penalties as long as you are on an IRS payment plan. While it may be compelling to pay as little as possible each month, it’s ill-advised. The longer it takes you to pay off your tax debt, the more your total debt amount will be. That’s why it’s important to pay off your debt as quickly as possible, through the largest possible monthly payments. Through IRS Form 9564, you will provide the IRS with the following information:
- Your name, social security number, and address
- Your debt amount and any additional balances
- Your minimum monthly payment
- Your preferred monthly payment
- Your preferred monthly payment date (must be before the 28th of each month)
- Your bank routing number and account number, if paying via direct debit
Who Can File IRS Form 9465?
Anyone who wants to apply for an installment agreement can complete IRS Form 9465, but for some, it isn’t necessary.
You must complete IRS Form 9465 if you owe any amount and are applying for an installment agreement by phone or by mail. If you owe more than $50,000 in combined tax debt, penalties, and interest, you must file Form 433-F Collection Information Statement alongside it.
If you owe less than $50,000 in combined tax debt, penalties, and interest, you can avoid completing Form 9465 by applying for an installment agreement online. You should not file Form 9465 if:
- You wish to modify an existing installment agreement
- You are in the process of bankruptcy
- You are seeking an Offer in Compromise or a Partial Payment Installment Agreement
IRS Installment Agreement Fees
Before proposing a long-term payment plan, understand that there are fees to start these agreements. Currently, the fee can cost up to $120, but there may be changes taking place soon.
In January 2017, the IRS revised their schedule of user fees applying to any taxpayer that enters into an installment agreement or payment plan after this date. The proposal created an increase in installment agreement fees, up to $225. This rate applies to anyone who entered into an installment agreement in person, by mail, over the phone, or by filing Form 9465.
The following table from IRS.gov details the proposed schedule:
- Regular installment agreement $225
- Regular direct debit installment agreement $107
- Online payment agreement $149
- Direct debit online payment agreement $31
- Restructured or reinstated installment agreement $89
- Low-income rate $43
Can The IRS Refuse an Installment Agreement Proposal?
There are three reasons the IRS might reject a proposed installment payment plan:
- Unnecessary Living Expenses
If the IRS deems your living expenses extravagant, they will deny your payment plan proposal. Whether it be charitable contributions or large credit card payments, should the IRS balk at your living expenditures, they’ll likely refuse your offer.
- Your Collection Information Statement is Incorrect
If the information provided on your Form 433-A, or Collection Information Statement is untruthful or incomplete, the IRS may assume you’re hiding income or property.
- You’ve Defaulted on a Previous Installment Agreement
If you have already defaulted on a prior payment plan, the IRS may be hesitant to accept your new proposal.
If your installment agreement is rejected, you can negotiate again. If you haven’t already, speak with a tax accountant that can help you revise and prepare your next payment plan proposal to assure better chances of success.
What If I Can’t Afford to Pay Back the IRS?
If one of the above installment agreement options still leaves you unable to pay your tax debt, you’re not totally out of luck. The IRS offers additional solutions to those in financial hardship.
Stair-step Installment Agreement
If you have an ongoing expense that will make it difficult for you to pay a regular, monthly payment, such as a child support payment or home mortgage, you may qualify for a stair-step installment agreement. This type of installment agreement begins with a 12-month period of a low monthly payment, and then slowly ramps up each payment amount over the course of the next 4 years. This can give you the time to achieve financial stability over the course of your installment agreement, and continue to increase your payment as your financial stability increases.
Offer in Compromise
This is a settlement with the IRS to settle the debt for less than you owe. Essentially, you’ll negotiate with the IRS to pay a lump sum amount that is lower than your actual debt, and the IRS will erase your debt as soon as the agreed-upon amount is paid. These can be extremely difficult to qualify, and it’s important to use the help of a tax expert to ensure the best chance of approval.
When applying for an IRS Offer in Compromise, there are three different reasons that you may qualify:
- Doubt as to collectibility: It’s unlikely that, with your assets, income, and financials, you’ll be able to afford to pay off your debt in the time period to collect (10 years from your tax assessment). This is the most common type of Offer in Compromise.
- Doubt as to liability: You have reason to believe that you may not be liable (responsible) for the tax debt the IRS claims you owe. You’ll need to provide proper evidence that supports this claim.
- Effective tax administration: You are responsible for the debt, but due to an exceptional circumstance, you should not have to pay the full amount. For instance, if you have a chronic illness that results in exorbitant medical bills and consumes most of your income, you can argue that you should not be responsible to pay off your total debt amount.
If you do pursue an Offer in Compromise, it’s important to show the IRS that you are a responsible taxpayer by taking active steps to clear your existing debt. The IRS won’t consider an Offer in Compromise from a taxpayer who hasn’t been taking steps to start paying off what they owe. Once your negotiations have begun, they may take up to 12 months to process, and you’ll need to be making payments during the interim period.
Partial Payment Installment Agreement
Just like an IRS Offer in Compromise, a partial payment installment agreement is an agreement with the IRS to pay off an existing debt for less than the actual owed amount. In this case, you’ll pay off your debt over the course of time just like any other IRS payment plan, but the total amount that you pay will be less than your debt amount.
Again, partial payment installment agreements can be tricky to qualify for, and it’s important that you use the help of a tax professional for the best chances of qualification.
Currently Not Collectible Status
Another option if you cannot afford to pay your taxes is to request to be put into Currently Not Collectible status with the IRS. While you are currently not collectible, the IRS cannot place any liens or levies against you and cannot garnish any of your wages or assets.
While you cannot be collected on while CNC, you will continue to accrue penalties and interest as long as you remain currently not collectible. Additionally, the IRS may choose to suspend the 10-year time to collect while you are not collectible, so you will eventually be responsible for paying your debt back.
Can the IRS Revoke my Installment Agreement?
There are cases in which the IRS may revoke a taxpayer’s installment agreement. While you and the IRS are both bound by the agreement’s terms, should any of the following be true, the IRS may revoke the payment plan:
Should you not make your payments on time and in full, the IRS may revoke your installment agreement immediately. Generally, the Internal Revenue Service will wait anywhere from 30 to 60 days before revoking the payment plan and usually give you a warning or chance to reinstate the agreement by paying the outstanding balance for that monthly payment.
You Fail to File or Pay Taxes after the Installment Agreement
The IRS keeps tabs on your current returns and income tax requirements. A failure to file or failure to pay future income tax bills can result in revocation of the payment plan.
You Omitted or Misreported Information
If the IRS discovers you’ve knowingly provided incomplete or inaccurate information as part of the negotiation, they will revoke your installment agreement.