IRS Payment Plans

Your Complete Guide to Installment Agreements

Key Takeaways

Understanding IRS payment plans can transform overwhelming tax debt into manageable monthly payments, preventing aggressive collection actions while you resolve your obligations.

• Choose based on debt amount: Owe under $50,000? Qualify for streamlined agreements with up to 72 months to pay and no tax lien filing required.

• Apply online for fastest approval: Online applications through IRS.gov provide immediate approval notification and lower setup fees ($22 vs $178 for other methods).

• Direct debit saves money and prevents default: Automatic bank withdrawals reduce setup fees significantly and eliminate the risk of missed payments that trigger collection actions.

• Interest continues accruing during payment plans: While penalties are reduced from 0.5% to 0.25% monthly, interest compounds daily until your balance is fully paid.

• Missing payments triggers 30-day warning period: The IRS sends Notice CP523 giving you one month to cure the default before potential agreement termination and collection actions resume.

Payment plans effectively stop IRS levies and wage garnishments while active, making them a crucial tool for taxpayers facing collection pressure. Most individuals qualify for simplified agreements without extensive financial disclosure requirements.

What is an IRS Payment Plan?

The IRS payment plan lets you pay your tax debt over time instead of all at once. These plans, which you might hear called installment agreements, help you manage your tax payments if you can't pay the full amount by the due date.

Here are the two main types of payment plans the IRS offers:

1. Short-term payment plan: You get up to 180 days (about 6 months) to pay what you owe. This plan works if your total debt is under $100,000, including tax, penalties, and interest. You won't pay an application fee, but interest and penalties keep adding up until you've paid everything.

2. Long-term payment plan: This plan, also called an installment agreement, spreads your payments over a longer time. If you owe less than $50,000 total, you can take up to 72 months (6 years) to pay. Businesses owing less than $25,000 can spread payments over 24 months.

You need to file all required tax returns before getting approved for any payment plan. The IRS expects you to stay current with future tax obligations while you're paying off your debt.

Setup fees apply to formal installment agreements, but you'll pay less if you choose direct debit payments from your bank account. Direct debit isn't optional for everyone - individual taxpayers who owe $25,000 to $50,000 and businesses owing $10,000 to $25,000 must use it.

The IRS will use any future tax refunds to pay down your debt until it's gone. They might still file a Notice of Federal Tax Lien even after approving your payment plan.

Setting up a payment plan comes with some key benefits. The IRS won't start a tax levy while your agreement stays active. Your request for a payment plan puts the 10-year collection period on hold.

The "Simple Payment Plan" works for about 90% of individual taxpayers, and the IRS has started offering it to some business taxpayers. You won't need a collection information statement or lien determination with this streamlined option.

If you can't pay your balance within the Collection Statute Expiration Date (usually 10 years), a Partial Payment Installment Agreement might work for you.

How to Choose the Right Installment Agreement

Your tax debt amount, payment timeframe needs, and financial situation determine which IRS installment agreement works best for you. The right option lets you make manageable payments and avoid extra fees or collection actions.

Based on how much you owe

Your tax debt amount directly affects your agreement options:

If you have:

• $10,000 or less: You can get a Guaranteed Installment Agreement with up to 36 months to pay

• $50,000 or less: A Streamlined Installment Agreement gives you up to 72 months to pay

• $50,000-$250,000: You'll need a Non-Streamlined Installment Agreement (NSIA) that comes with a tax lien

• Under $100,000: You can opt for a short-term payment plan (180 days)

Business owners face different limits:

• $25,000 or less: You can get a long-term payment plan with up to 24 months to pay

You might want to pay down your balance below $50,000 to qualify for simpler agreement options that have fewer requirements.

Based on how long you need to pay

Each agreement type comes with its own payment timeline:

The short-term plan lets you pay your balance within 180 days. A guaranteed agreement gives you 36 months when you meet all requirements and have a clean compliance history for five years. Streamlined agreements extend your payment window to 72 months.

Larger balances need more time. Non-streamlined agreements let you pay until the collection statute runs out—usually 10 years from assessment. Partial payment installment agreements help taxpayers who can't pay their full debt before the collection statute expires.

Based on your financial situation

Your money situation affects what you can qualify for and what you need to do:

Partial payment installment agreements help taxpayers in true hardship by setting payments based on what they can actually pay. The IRS requires direct debit for individual balances between $25,000 and $50,000 and business balances between $10,000 and $25,000.

Setup fees might be lower or waived if you have a low income. Larger amounts need more paperwork, including a detailed Collection Information Statement.

The IRS won't file a tax lien for guaranteed and streamlined agreements. Non-streamlined agreements almost always need a lien filing. You might want to stay under the streamlined threshold if avoiding a tax lien matters to you.

How to Apply for an IRS Installment Agreement

Taxpayers have several ways to ask for an IRS installment agreement depending on their situation and priorities. The way you apply affects how fast it gets processed and what fees you'll pay.

Online application through IRS.gov

The Online Payment Agreement (OPA) application is the quickest way to set up an installment agreement. You'll know right away if you're approved. This option works if you have $50,000 or less in combined tax, penalties, and interest for long-term plans. Short-term plans allow up to $100,000. Business owners can use this option if they owe $25,000 or less and have filed all required returns. The online method saves you money with lower fees than other ways to apply.

Using IRS Form 9465

Form 9465, Installment Agreement Request, helps taxpayers who can't pay their full tax bill. You can submit this form:

• With your tax return (attached to the front)

• Separately after filing your return

• Electronically through tax preparation software

• When you respond to an IRS notice

The IRS usually responds within 30 days, but tax season might slow things down. Make sure to mail your form to the right IRS address based on where you live and your tax situation.

Applying by phone or mail

The IRS takes applications by phone if you can't apply online. Individuals should call 800-829-1040, while businesses need to dial 800-829-4933. Wait times can run between 30-120 minutes. You can skip the phone wait by mailing Form 9465 to the right IRS address for your location and filing status.

Documents and information you'll need

Here's what you need to apply for an installment agreement:

• Social Security Number or Employer Identification Number

• Valid email address

• Photo identification (for online applications)

• Bank account information (for direct debit arrangements)

• Form 433-F (Collection Information Statement) if you owe more than $50,000

• Form 2159 (Payroll Deduction Agreement) if you want payment via payroll deduction

• The first payment amount you can handle

• Monthly payment amount you suggest

• Payment due date you prefer (between 1st-28th of month)

If money's tight, it's smart to include Form 433-F even for smaller amounts. This shows the IRS what you can actually afford to pay.

What to Expect After You Apply

The IRS starts reviewing your installment agreement application right after submission. The review time depends on how you submit it. This knowledge helps you prepare better to meet your payment obligations.

Approval timeline

Your application method determines how quickly you get approved. Online Payment Agreement (OPA) users get instant approval notifications. A response to Form 9465 submissions usually takes 30 days, though tax season might extend this timeline. An IRS employee might ask for your financial records during this waiting period to verify your proposed payment amount. The 10-year collection period stays on hold while your request is pending.

Setup fees and payment methods

Your application method and payment type determine the setup fees:

• Online applications with direct debit: $22 setup fee

• Phone, mail, or in-person with direct debit: $107 setup fee

• Online without direct debit: $69 setup fee

• Phone, mail, or in-person without direct debit: $178 setup fee

You might qualify for reduced or waived fees if you have a low income. Direct debit payments are your best option as they handle monthly payments automatically, eliminate postage costs, and lower your risk of default. The IRS requires direct debit for balances between $25,000 and $50,000.

IRS installment agreement interest rate 2024

Your approved payment plan doesn't stop interest and penalties from adding up until you pay the full balance. An active installment agreement reduces the failure-to-pay penalty rate from 0.5% to 0.25% monthly. Interest compounds daily based on the federal short-term rate plus 3 percent and updates quarterly.

Where to mail IRS installment agreement form

Your state and filing status determine where to mail Form 9465 if you submit it separately from your tax return. Taxpayers from Alabama, Florida, and Georgia should send their forms to the IRS P.O. Box in Doraville, Georgia. Alaska, Arizona, and Connecticut residents mail theirs to Andover, Massachusetts. Different addresses apply when you file Form 1040 with Schedule C, E, or F.

IRS installment agreement phone number

Individual taxpayers can call 800-829-1040 with questions about installment agreements or changes. Businesses should use 800-829-4933. Use the specific number on your notice or bill for customized help. Call the IRS right away at the same number if you can't make payments under your agreement to discuss possible modifications.

What Happens If You Miss a Payment

Late payments on your IRS installment agreement start a chain of events that need quick action. The IRS delivered around 2.4 million defaulted installment agreement notices to taxpayers in 2021.

IRS default and revocation

You default on payments by missing them, getting new tax debt, not responding to IRS questions, or failing to adjust payment amounts. The IRS will send Notice CP523 or Letter 2975 and give you 30 days to fix things. Your agreement doesn't end right away with these notices, but they signal termination is coming without action.

How to reinstate your agreement

You need to call the IRS right away at the number on your notice to reinstate. The IRS offers streamlined reinstatement if this is your first default in 12 months. Other cases might need new financial details, a reinstatement fee, or payment of recent tax debts. The IRS looks at why you defaulted, your payment capability, and past compliance before giving approval.

Impact on your credit and tax refunds

The IRS stopped reporting tax debt to credit bureaus after 2018. All the same, they'll use your refunds to pay down the outstanding balance until it's gone.

IRS collection actions

No response within 30 days lets the IRS file a federal tax lien, take money from your wages and bank accounts, or block passport renewal for debts above $55,000. These collection efforts usually start 90 days after sending the CP523 notice.

FAQs

Q1. How does an IRS installment agreement benefit taxpayers? An IRS installment agreement allows taxpayers to pay their tax debt over time, typically in monthly installments. This can be especially helpful for those who can't pay their full tax liability at once. It provides relief from immediate full payment and can prevent more severe collection actions.

Q2. What are the main types of IRS payment plans available? The IRS offers two primary types of payment plans: short-term plans (up to 180 days) for individuals owing less than $100,000, and long-term plans (up to 72 months) for individuals owing less than $50,000. Businesses with a balance under $25,000 can make monthly payments for up to 24 months.

Q3. How can I apply for an IRS installment agreement? You can apply for an IRS installment agreement online through the IRS website, by submitting Form 9465, or by phone. Online applications are typically the fastest and have lower setup fees. The method you choose may depend on your specific tax situation and the amount you owe.

Q4. What happens if I miss a payment on my IRS installment agreement? If you miss a payment, your agreement may default. The IRS will send a notice giving you 30 days to remedy the situation. If you don't take action, the IRS may terminate your agreement and potentially pursue more aggressive collection actions, such as liens or levies.

Q5. Can I modify my IRS installment agreement if my financial situation changes? Yes, you can request modifications to your installment agreement if your financial circumstances change. It's important to contact the IRS immediately if you're unable to make payments as agreed. The IRS may be able to adjust your payment amount or temporarily suspend payments based on your current financial situation.