Information About Online Payment Agreements
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Key Takeaways
- You can apply for an IRS installment agreement online if you owe $50,000 or less in combined taxes, penalties, and interest and have filed all required tax returns.
- The online application usually takes less than 30 minutes if you have your tax information ready, like how much you owe and details from a recent tax return.
- You can choose your monthly payment amount and pick the day you want the IRS to pull the payment from your bank account automatically.
- Setting up an online payment plan comes with a setup fee, but it’s cheaper if you agree to automatic direct debit payments.
- Missing a payment could cause your agreement to default, meaning the IRS could cancel it and take collection actions like wage garnishments or levies.
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.
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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.
Note that an installment agreement is not the same thing as an ‘Offer in Compromise.’ For more information, visit our Tax Debt Relief page.
Short-Term Payment Agreement
If you owe the IRS less than $100,000 in combined taxes, penalties, and interest, you might qualify for what’s called a short-term payment agreement. Think of it as a grace period that gives you a little extra breathing room to get your balance paid off without having to officially enter into a full installment agreement. With a short-term agreement, you’ll have up to 120 days — that’s about four months — to pay everything you owe.
The best part? If you can pay off your full balance within those 120 days, you don’t have to pay the setup fee that usually comes with a long-term payment plan. That can save you a chunk of money, especially since regular installment agreements charge setup fees that can range from $31 to over $100 depending on how you pay.
Setting one up is pretty simple. You can either call the IRS directly at 1-800-829-1040 and talk to a representative, or you can request it online through the IRS website at IRS.gov. If you’re doing it online, you’ll need to create an IRS account if you don’t already have one, but once you’re logged in, it’s a fairly quick process.
One thing to keep in mind: even with a short-term agreement, penalties and interest will keep adding up until you pay your full balance. So the faster you knock it out, the less you’ll end up paying overall. If you think you’ll need longer than 120 days, you might be better off setting up a traditional installment plan from the start to avoid any issues down the road.
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).
FAQ: Setting Up an IRS Installment Agreement Online
1. Who qualifies to set up an IRS installment agreement online?
If you owe $50,000 or less in combined taxes, penalties, and interest and you’ve filed all your tax returns, you’re eligible to set up a long-term payment plan online. If you owe less than $10,000, you’re almost guaranteed approval as long as you stick to the basic rules. If you owe more than $50,000, you can still apply, but you’ll probably need to submit more paperwork and can’t use the simple online system.
2. What do I need before applying for an online payment plan?
You’ll want to have a few things handy to make the process fast and easy. You’ll need your name exactly as it appears on your most recent tax return, your filing status, your address, and a valid email address to create or log into your IRS account. It also helps to know how much you currently owe and your bank account information if you want to set up automatic payments.
3. How much does it cost to set up an online installment agreement?
The fee depends on how you plan to pay. If you set up automatic direct debit payments from your bank account, the setup fee is lower, around $31. If you choose to pay manually each month, the setup fee is about $130. Low-income taxpayers might qualify for a reduced fee or even get the setup fee waived altogether if they meet certain guidelines.
4. Can I pick the amount I want to pay each month?
You do get some say in how much you pay, but the IRS has to approve it. They expect you to pick an amount that will fully pay off your balance within the agreed timeline, usually 72 months or less. If your proposed monthly payment is too low to clear your debt in time, the IRS might either reject the plan or request financial information to decide if you qualify for a longer term.
5. What happens if I miss a payment on my plan?
Missing a payment can cause serious problems. If you skip one, the IRS might cancel your entire agreement after giving you a warning. Once canceled, they can move forward with collection actions like levies or wage garnishments. If you know you’re going to miss a payment, it’s better to contact the IRS right away and try to modify your agreement instead of just letting it lapse.
6. Can I change my payment plan after it’s set up?
Yes, you can make changes to your plan if you need to. You can update your monthly payment amount, switch your due date, or even change how you make your payments by logging into your IRS online account. If you need bigger changes, like reducing your payment significantly, the IRS might ask for updated financial information before approving the request.
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