Many people in the U.S. fail to pay their taxes, whether on time or at all. It has become a problem for the IRS over the years. IRS research found that, in 2022, American taxpayers owed more than $120 billion in back taxes in addition to penalties and interest. It’s clearly seen from this figure that it is common for people not to be able to pay what they owe or to avoid paying it.
One way the IRS offers to help these taxpayers is to allow something called a payment plan or installment agreement. These agreements allow people to pay what they owe over time under a variety of terms and conditions. Taxpayers can stay in good standing with the IRS when they set up these agreements rather than getting into trouble by ignoring their tax bills.
The IRS offers several types of installment agreements. This guide walks through each one—including the streamlined installment agreement—and covers how they work, seven frequently asked questions about IRS installment agreements, and how Silver Tax Group can help negotiate a favorable payment plan for you, even one in which you may not have to pay the full amount owed.
Table of Contents
Many taxpayers have to deal with a steep tax bill after filing their taxes each year. This is why so many people dread tax season. The IRS wants Americans to pay what they owe when they owe it, but the agency recognizes that getting hit with a big bill is harder for some than others.
The IRS created payment plans, or installment agreements, to help address the issue. The agency’s website states that a payment plan is “an agreement with the IRS to pay the taxes you owe within an extended timeframe.” Some payment plans are short-term, and some are long-term. There are also different conditions depending on the amount of tax you owe the IRS. Generally, taxpayers can qualify if they’re in good standing otherwise but are unable to pay what they owe.
| Type of Installment Plan | Description |
|---|---|
| 1. Guaranteed Installment Agreement | This plan is for taxpayers who owe less than $10,000, excluding penalties and interest. Taxpayers must not have had an installment agreement in the last five years and must agree to file and pay all future tax returns on time. |
| 2. Streamlined Installment Agreement | Streamlined installment agreements are available to taxpayers owing $50,000 or less. The IRS will not conduct a detailed review of the taxpayer’s financial situation under this agreement. |
| 3. Installment Agreement for Tax Debt over $50,000 | For larger tax debts, the IRS requires a more detailed analysis of the taxpayer’s financial situation, including an assessment of the taxpayer’s income, expenses, and assets. |
| 4. Partial Payment Installment Agreement | This agreement allows taxpayers to make monthly payments towards their tax debt that are less than the full amount owed. The IRS will review the agreement every two years to see if the taxpayer’s financial situation has improved. |
| 5. Offer in Compromise | This is not a typical installment agreement but is worth mentioning. An Offer in Compromise allows taxpayers to settle their tax debt for less than the full amount they owe if the IRS believes the taxpayer cannot pay the full amount or doing so would cause financial hardship. |
| 6. Short-Term IRS Payment Plan | A short-term IRS payment plan is an agreement with the IRS that allows taxpayers to pay off their tax debt in 120 days or less. |
| 7. In-Business Trust Fund Express Installment Agreements | An In-Business Trust Fund Express Installment Agreement is an arrangement offered by the IRS that allows businesses to pay off their outstanding payroll taxes in installments, typically over a period of 24 months. |
The IRS offers various types of payment plans to help taxpayers manage their liabilities. These payment plans allow you to pay your tax debt over time, making it more manageable and less stressful. Here are the four types of IRS payment plans available to taxpayers:
An IRS Guaranteed Installment Agreement is a type of payment plan for taxpayers who owe $10,000 or less in back taxes (excluding penalties and interest). It allows them to pay off their tax debt in installments within a period of 36 months. This agreement is generally automatically approved, provided that the taxpayer pledges to pay off their balance within three years. There’s no specific minimum payment required under this agreement, making it an accessible option for many. However, it’s important to note that all income tax returns must be filed and paid on time while the agreement is in effect.
A long-term payment plan or installment agreement allows taxpayers to pay their tax debt monthly over an extended period, typically more than 180 days if they owe $50,000 or less. There are two types of long-term payment plans:
Long-term payment plans are also subject to fees. Taxpayers will be charged accrued penalties and interest until the complete balance is paid back.
This kind of agreement allows taxpayers to make smaller monthly payments than a regular installment agreement. This option is suitable for individuals who can’t afford the standard payment plan but can still make some payments toward their tax debt. The IRS reevaluates your financial situation under a PPIA at least every two years, and your monthly payment amount may change based on your updated information.
PPIAs allow you to pay off your debt to the IRS over a set period of time rather than all at once. In order to request a partial payment installation agreement, you need to:
There are several key things you need to know about requesting a partial payment installment agreement for your tax debt. First and foremost, keep in mind that the IRS will still place a lien on you for the full amount, which will enable it to collect from you if you default on your loan. When you set up your PPIA, you are committing to keeping up with your monthly payments, and you may no longer have the option to pay the reduced amount of your tax debt if you default.
Here’s how the process works:
These forms include personal, financial, and asset information, which can help the IRS decide if you’re eligible for a PPIA or if you need to look into different resolutions for your tax debt. This form may help show that you cannot make a full payment of your income taxes and establish why you need a PPIA to help you meet your obligations. If you are representing a business, you should keep in mind that the IRS can shut it down if you do not make vital tax payments. That means you should handle those obligations as soon as possible.
Before you approach the IRS about a PPIA, make sure you have a solid idea of exactly how much you owe in back taxes. In addition to your initial tax debt, this will include any penalties that were added to your tax debt.
Form 9465, the installment agreement request, includes the amount you would like to be able to pay toward your tax debt each month. Work with an experienced tax attorney to get a better idea of how much you can afford. Make sure you take into account your current disposable income, lifestyle, bills, and other expenses. Keep in mind that you may need to adapt your lifestyle to take care of back taxes and meet IRS obligations.
In addition to the forms associated with your request, you should work with a tax attorney to submit a written request for a partial payment installment agreement. Make sure you include any information about your financial status and living expenses as well as why you’re requesting the PPIA. Your attorney can help give you a better idea of what to include as part of your request letter, and help you establish a payment amount that meets your current financial needs.
Once you have submitted your paperwork, you will need to wait for the IRS to respond to it. It can take up to 30 days — in some cases more — for you to receive a response. The IRS may accept your offer, make alterations to it, or reject it based on your income, financial situation, and other factors.
Keep in mind that you do owe this debt to the IRS and have failed to pay it. If the IRS grants a PPIA, you can reduce your debt and decrease your tax payments, but the agency is not obligated to do this. Working with an experienced tax attorney can increase your odds of having your offer accepted.
An OIC is a settlement option for taxpayers who can’t pay their tax debt in full and for whom an installment agreement would cause financial hardship. The IRS agrees to accept a lesser amount than what you owe with an OIC based on your ability to pay it. You must meet specific eligibility criteria to qualify and submit a detailed application with supporting documents. The process can be lengthy and complex, and the IRS is not guaranteed to accept your request.
These are the basics of IRS payment plans, which give you options when you’re unable to pay what you owe. Remember that you’ll be responsible for any setup fees, additional penalties, and interest with these plans, so it’s always best to do what you can to pay as quickly as possible. Skilled tax professionals can often negotiate your installment plan with the IRS to help you get the most favorable terms and even potentially pay less than you owe.
A short-term payment plan is best for taxpayers who can pay their tax debt within 180 days and owe less than $100,000. This payment plan does not require a setup fee; you can apply online, by phone, mail, or in person. Keep in mind, however, that penalties and interest will continue to accrue until the balance is completely paid. The IRS only allows individual taxpayers to apply for a short-term plan online.
An IRS In-Business Trust Fund Express Installment Agreement is a payment plan specifically designed for businesses that owe $25,000 or less in payroll taxes. This agreement allows businesses to pay off their tax debts within a period of 24 months or prior to the Collection Statute Expiration. The primary advantage of this agreement is that it generally does not require a financial statement or financial verification as part of the application process. It’s particularly useful for small businesses with employees who owe back payroll taxes. To qualify for this agreement, a business must agree to fully pay the debt within the specified timeframe.
A streamlined installment agreement may be the right option for some taxpayers. You have to meet certain criteria to qualify, and the IRS has created enhanced criteria to improve customer service and efficiency while reducing the burden on the taxpayer.
These agreements are simplified plans that allow a taxpayer to pay their tax debt in smaller monthly payments over time. It is an alternative to the more complex payment plans the IRS offers taxpayers who owe back taxes. The streamlined installment agreement:
Taxpayers may qualify for a streamlined installment agreement if they meet these requirements:
The IRS says that most taxpayers with a balance of $25,000 or less meet the criteria. The streamlined installment agreement aims to make it easier and faster for taxpayers to resolve their tax debts through an installment plan. However, taxpayers with more complex financial situations may need to apply for a traditional installment agreement instead. Also, remember that penalties and interest will continue to accrue on debt with these agreements until the balance is paid off.
Installment agreements provide clear benefits to taxpayers when they’re struggling to come to terms with their tax bills. You may still have a few questions before deciding to take the leap, especially if you’re new to IRS payment plans. Here are seven FAQs with answers:
Any taxpayer can request a payment plan when they realize they can’t pay the taxes they’ll owe by the deadline. You can make a request even if you can pay some of what you owe, but not all. Taxpayers who can’t pay should always take this step to avoid a Notice of Federal Tax Lien or an IRS levy.
The IRS created an Apply Online for a Payment Plan tool where you can request an agreement. You will need your basic information, photo ID, bank account numbers if applicable, and the balance due if you already filed your return. You can also apply using Form 9465, Installment Agreement Request, by phone or by mail.
Yes. Taxpayers are responsible for any accrued interest or penalties, even if they have a streamlined installment agreement with the IRS.
You can see your payment history and what you owe on your plan by logging into your online account with the IRS.
You don’t want to ignore the fact that you can’t pay your taxes. You can avoid collection actions, like levies, from the IRS if you set up a payment plan with the agency. You will be able to pay what you owe over time so that you can afford the payments.
Setting up a payment arrangement with the IRS does not impact your credit report. You get more time to pay off your tax liability, so you avoid more significant fees and legal trouble.
You can change certain details about your plan if needed, including when payments are due each month and the amount you pay each month. You can also decide to implement automatic withdrawals later.
The IRS aims to simplify the payment plan process so that taxpayers will use it. The agency recognizes that many more Americans would not pay what they owe in taxes each year without this option.
Yes, The IRS Fresh Start Initiative: This program has been expanded to assist taxpayers who owe taxes. It offers several benefits such as prevention of lien being filed against a tax payer and, in some cases, removal of a tax lien that has already been placed. To be eligible for the Fresh Start Program, you must meet one of the following criteria: You’re self-employed and had a drop in income of at least 25%, you’re single and have an income of less than $100,000, or you’re married and have an income of less than $200,000
Once you have entered into a payment installation agreement with the IRS, it is critical to make sure you make your payments on time. If you default, you could find yourself again facing the full burden of your initial tax debt.
Here are some tips:
IRS payment plans can be a great option if you can’t afford to pay your tax burden in full. You can avoid legal trouble and keep the IRS off your back with collections. It’s important to remember that ignoring your tax debt will only make matters worse, so consider setting up an installment plan if you’re struggling to pay your taxes on time.
Streamlined installment agreements can help you get back on track and fulfill your tax obligations without breaking the bank. Just remember that you will be responsible for paying the setup fees and any penalties or interest that accrue until your full balance is paid.
You may still be unsure if this is the right path for you or how to start the application process. It’s always best to talk through your situation with a tax expert. The team at Silver Tax Group can help you understand IRS payment plans and your options. We often negotiate with the IRS to obtain a plan that allows a taxpayer to pay less than the full amount owed over time, burning out the statute of limitations on the debt. This means a taxpayer often pays significantly less than the full amount owed to the IRS.
The tax professionals at Silver Tax Group will get to know your unique tax concerns and advise you on the best path forward. We can help you negotiate an IRS payment plan in addition to helping with tax debt resolution, emergency tax services, IRS defense, audit defense, general tax consulting, and much more. Reach out to Silver Tax Group to speak to a tax attorney about IRS installment plans and agreements.
