If you cannot pay the full amount due with your income tax return, you can ask the IRS if they will allow you to make monthly installment payments for the full amount or a partial amount. However, keep in mind that you will be charged interest and also possibly a late payment penalty on the tax not paid by the date your return is due, even if your request to pay in installments is granted.
If your payment plan request is granted by the IRS, you must also pay a fee. To limit your interest and penalty charges, try to pay as much of the tax as possible with your tax return. But before requesting an installment agreement, you may want to consider other less costly alternatives, such as a bank loan.
To ask for an installment agreement, use Tax Form 9465, known as the Installment Agreement Request. You should receive a response to your request within 30 days. You can also apply online for a payment agreement. To do that, go to the IRS website and use the pull-down menu under “I need to . . .” and select “Set Up a Payment Plan.”
How an Installment Agreement Works
The IRS will usually let you know within 30 days after receiving your request whether it is approved or denied. However, if your request is for tax due on a return you filed after March 31, it may take longer than 30 days to reply. If The IRS approves your payment plan request, they will send you a notice detailing the terms of your agreement and requesting a fee of $105 (or $52 if you make your payments by electronic funds withdrawal). However, you may qualify to pay a reduced fee of $43 if your income is below a certain level. The IRS will let you know whether you are eligible for the reduced fee. If the IRS does not say you qualify for the reduced fee, you can request the reduced fee using Tax Form 13844 (Application for Reduced User Fee for Installment Agreements).
You will also be charged interest and possibly a late payment penalty on any tax not paid by its original due date, even if your request to pay in installments is granted. Interest and any applicable penalties will be charged until your balance is paid in full. To limit the interest and penalty charges, you will want to file your tax return on time and pay as much of the tax as possible with your return (or notice). All payments received will be applied to your account.
By approving your request, the IRS agrees to let you pay the tax you owe in monthly installments (instead of immediately paying the amount in full). In return, you are agreeing to make your monthly payments on time. You are also agreeing to meet all your future tax liabilities. This means that you must have enough withholding or estimated tax payments so that your income tax liability for future years is paid in-full when you timely file your return. Your request for an installment agreement will be denied if all required tax returns have not been filed. Any tax refund due you in a future year will be applied against the amount you owe. If your tax refund is applied to your balance, you are still required to make your regular monthly installment payment.
You can make your payments by check, money order, credit card, or with a different payment method. After The IRS receives each payment, they will send you a notice showing the remaining amount that you owe, and the due date and amount of your next payment. However, if you choose to have your payments automatically withdrawn from your bank account, you will not receive these notices in the mail.
Keep in mind, your bank statement is your record of payment. The IRS will also send you an annual statement showing the amount you owed at the beginning of the year, all payments made during the year, and the amount you owe at the end of the year. If you do not make your payments on time, or you do not pay any balance due on a return you file later, you will be considered “in default” on your installment agreement and the IRS may take action against you ― such as filing of a “Notice of Federal Tax Lien” or an IRS levy action ― to collect the entire amount you owe. To ensure that your payments are made in a timely manner, you should consider making them by electronic funds withdrawal.
For more information about IRS payment plans and installment agreements, please visit the following websites: