Information About Online Payment Agreements
How to Set Up an IRS Payment Plan
If you owe more taxes than you can afford to pay right now, the IRS offers payment arrangement options. However, it is important to understand that regardless of your reason for paying taxes late, the IRS will charge interest and penalties for late tax payments.
If you owe back taxes and you cannot find another solution (such as a bank loan or other financing option), you may be able to apply for an ‘Online Payment Agreement’ with the IRS.
What Is an Online Payment Agreement?
Individuals and businesses with overdue taxes can request to set up a payment agreement. This request can be made by filing Form 9465 (Installment Agreement Request) or by applying for an online payment agreement.
NOTE: You must file all required tax returns before you can apply for any payment agreement.
In order to apply for an online payment agreement, you must meet certain eligibility requirements. Individuals cannot owe more than $50,000 in combined income tax, penalties, and interest. Businesses cannot owe more than $25,000 in payroll taxes. Eligible taxpayers can apply for an online payment agreement through the IRS.gov website.
If you are not eligible for an online payment agreement, use Form 9465 to make your request. This includes individuals who owe more than $50,000 and businesses that owe more than $25,000. Taxpayers using Form 9465 must also file a Collection Information Statement (Form 433-A, Form 433-B, or Form 433-F), which will help the IRS determine how your outstanding tax liability can be satisfied.
Types of Online Payment Agreements
There are 2 main options when it comes to requesting an online payment agreement. You can either request to establish a monthly installment plan or (in some circumstances) you can request a short-term extension of time to pay.
Monthly Installment Plan
This option allows you to pay your tax balance in monthly installments, rather than all at once. When you request an installment plan, you are agreeing to make the monthly payments on time. You are also agreeing to meet all future tax obligations, which means that you must have enough tax withheld (or make estimated tax payments) so your tax liability for future years is fully paid when you file your tax return.
You can make installment payments via check, money order, credit card, direct debit, or payroll deduction. After the IRS receives each payment, they will send you a notice showing your remaining balance, as well as the due date and amount of your next payment. However, you will not receive a notice if you choose to have your payments automatically withdrawn from your bank account (via direct debit) – in this case, your bank statement is considered your record of payment.
RELATED: Federal Tax Payment Options
If you fail to make timely payments, or you file a future tax return without paying the balance due, you will be in default of your agreement. The IRS will likely take enforcement actions to collect your full tax debt, such as filing a ‘Notice of Federal Tax Lien’ or placing a tax levy on your property. Therefore, you may want to set up a Direct Debit agreement to avoid missing any payments.
Short-Term Payment Agreement
You may qualify for a short-term agreement if you owe the IRS less than $100,000. This is basically a short-term extension that gives you up to 120 days to pay your taxes in full. If you can pay your entire balance within 120 days, you will not have to pay the setup fee for an installment agreement (see below). To request a short-term extension, call the IRS at 1-800-829-1040 or apply online through the IRS.gov website.
Installment Agreements: Set Up Fees
The IRS will let you know whether your request is approved or denied, usually within 30 days after you apply. If your request is approved, the IRS will send you a notice containing the details of your payment agreement – plus a bill for the setup fee. It costs $120 to set up a monthly installment agreement (whether or not you apply online), but that fee drops to $52 if you make your payments using Direct Debit.
If your income is below a certain level, you may qualify for a reduced setup fee of $43. The IRS will tell you whether you are eligible for the reduced fee. If you received no indication, you can request the reduced fee by filing Form 13844 (Application For Reduced User Fee For Installment Agreements).
Taxpayers who qualify for the short-term payment agreement (120 days to pay in full) are not required to pay a setup fee.
For more information about IRS payment plans, see the Instructions for Form 9465 (Installment Agreement Request).