Crushing tax bills, mounting penalties, and the looming threat of IRS actions—sound familiar?Â
If you’re feeling the weight of an overwhelming tax debt, you’re not alone. Many find themselves in this stressful situation, searching for a lifeline. Luckily, the IRS offers a way out through IRS installment agreements.
An IRS installment agreement allows you to pay taxes in installments over time, easing the burden of a one-time, full payment. This plan is designed to be cost-effective, hassle-free, and manageable.Â
But how exactly do you set up such an agreement? What steps do you need to follow? This guide will answer all your questions, providing a clear path forward to help you regain control over your finances.
What is IRS Installment Agreement?
An IRS installment agreement is a payment plan that allows taxpayers to pay taxes in installments over a set period. This option can be beneficial for those who cannot afford to pay their tax bill in full right away. The IRS offers various types of installment agreements based on the taxpayer’s situation and the amount owed.
Different Types of IRS Installment Agreements
The IRS offers four main types of installment agreements to help taxpayers manage their tax debts and understand how to make arrangements to pay IRS.
Guaranteed Installment AgreementÂ
A guaranteed installment agreement is available to taxpayers who meet specific criteria:
- The total tax debt must be less than $10,000 (excluding interest and penalties).
- The taxpayer must have filed all required tax returns and paid previous taxes owed.
- They should not have entered into an installment agreement in the past five years.
- The taxpayer must be unable to pay the tax debt when it is due or within 120 days.
- The debt must be paid within three years.
- The minimum monthly payment is calculated by dividing the total tax liability, interest, and penalties by 30.
Streamlined Installment AgreementÂ
For those who might not qualify for a guaranteed installment agreement but still have manageable debt, a streamlined installment agreement is a viable option. This plan has the following requirements:
- The total tax liability, including interest and penalties, must not exceed $50,000.
- The balance due can be paid off within 72 months.
- The proposed payment should be at least the minimum required payment, which is the higher of $25 or the amount reached by dividing the total tax liability, interest, and penalties by 50.
- There is a setup fee for this agreement, with a reduced fee for those who opt for direct debit payments. Different fees apply for restructuring or reinstating a previous agreement.
Partial Payment Installment AgreementÂ
A partial payment installment agreement allows pay taxes in installments over time. To apply for this agreement:
- The taxpayer must complete Form 433-F, which details their income and living expenses.
- The IRS will review and verify the information provided. If the taxpayer has assets that could be sold to pay part of the debt, additional information may be required.
- Approved taxpayers must undergo a financial review every two years, which could lead to increased payments or termination of the agreement.
Nonstreamlined Installment Agreement
For taxpayers who owe $50,000 or more, a nonstreamlined installment agreement is an option. This agreement requires negotiation with the IRS and is not automatically approved. To apply:
- The taxpayer must submit Form 433-F, providing detailed information about their income, expenses, debts, assets, and bank accounts.
- They can propose a monthly payment amount.
- The IRS usually takes a few months to review the proposed payment plan.
- The IRS may reject the proposal if certain living expenses are deemed unnecessary, if the information provided is false, or if the taxpayer failed to complete a previous installment agreement.
If a taxpayer cannot manage their tax liability through a nonstreamlined agreement, they might consider filing an Offer in Compromise.
Who is Eligible for an IRS Installment Agreement?
Most taxpayers can qualify for an IRS installment agreement. To apply for a short- or long-term payment plan through the IRS’ Online Payment Agreement tool, you need to meet specific criteria:
Short-Term Payment Plan:
- Owe less than $100,000 in combined tax, penalties, and interest.
- Have filed all your tax returns.
- Be able to pay off your tax debt within 180 days.
Long-Term Payment Plan:
- Owe $50,000 or less in combined tax, penalties, and interest.
- Have filed all your tax returns.
- Need more than 180 days to pay your tax bill.
If the Online Payment Agreement tool determines you are not eligible to set up a plan online, you may still apply by mail or by phone. More details on these methods are provided below.
For questions about eligibility criteria or to determine if you qualify, please contact Peter Salinger and his team for assistance.Â
IRS Installment Agreement Application Process
Applying for an IRS installment agreement involves several steps to ensure your application is complete and accurate. Here’s a detailed guide to help you through the process:
Online Application
The quickest way to apply for a payment plan is through the IRS installment payment online portal. Follow these steps:
- Access the Online Payment Agreement Tool: Visit IRS.gov and navigate to the Online Payment Agreement tool.
- Log In or Create an Account: If you have an existing IRS account, log in using your user ID and password. If you don’t have an account, create one through ID.me to verify your identity and set up your IRS pay installment agreement online. To do so, you will need:
- A valid email address
- Photo identification (driver’s license, state ID, or passport)
- Your Social Security number or individual tax ID number
- Access to a smartphone or webcam for identity verification
- Access to a phone or email for multi-factor authentication
- Submit Your Application: Follow the prompts to enter your financial information and submit your request for an installment agreement.
If you need help verifying your information or require accessibility assistance, visit the ID.me help page for more details.
Paper Application
If you prefer to apply by mail, follow these steps:
- Complete Form 9465: Download and complete Form 9465, Installment Agreement Request, from the IRS website.
- Mail the Form: If filing with your tax return, attach Form 9465 to the front of your return and mail it to the address provided in your tax return booklet. If you have already filed your return, mail Form 9465 separately to the appropriate IRS address listed in the form’s instructions.
Phone Application
To apply by phone, follow these steps:
- Contact the IRS: Call the IRS at 1-800-829-1040 for individual payment plans or 1-800-829-4933 for business payment plans.
- Discuss Payment Options: Speak with an IRS representative to discuss your payment options and set up your installment agreement.
Documents Needed for an IRS Installment Agreement
When applying for an IRS installment agreement, certain documents and information are required to ensure your application is complete. Here is a summary of the necessary documents and information based on the latest IRS guidelines:
Form 9465: Installment Agreement Request
This form is used to request a monthly installment agreement if you cannot pay the full amount owed on your tax return or notice.
Form 433-F: Collection Information Statement
Partial Payment Installment Agreements (PPIA) and nonstreamlined agreements are required to provide detailed financial information.
Financial Statements and Income Information
Include detailed records of your income, expenses, debts, assets, and bank accounts.
Identification and Verification Information
- Valid email address and access to it.
- Photo identification (driver’s license, state ID, or passport).
- Social Security number (SSN) or individual tax ID number (ITIN).
- Access to a smartphone or webcam for identity verification.
- Access to a phone or email for multi-factor authentication.
Employer Information
If applying for a payroll deduction agreement, Form 2159 (Payroll Deduction Agreement) must be completed and signed by your employer.
Bank Account Information
Bank account routing and account numbers if opting for direct debit payments.
Previous IRS Notices and Tax Returns
- Any previous IRS notices related to your tax debt.
- Copies of all filed tax returns.
Proof of Low-Income Status (if applicable)
Form 13844, Application for Reduced User Fee for Installment Agreements, to request consideration for a reduced fee if you qualify as a low-income taxpayer.
Payment Information
- Details of any payments you can make immediately to reduce the balance due.
- Payment method details (e.g., check, money order, credit card, debit card).
Specific Instructions from IRS Correspondence
Follow any additional instructions provided by the IRS in notices or letters related to your installment agreement request.
By ensuring you have all these documents and information ready, you can streamline the application process for an IRS installment agreement and increase the chances of your plan being approved.
What Happens After You Apply for an IRS Installment Agreement?
Once you’ve submitted your request, either IRS installment payment online, by mail, or by phone, the IRS will usually respond within 30 days to let you know if your installment plan request is approved. If approved, they will send you a notice outlining:
- The terms of the agreement
- The applicable fee is based on your payment method and income level, so let’s discuss it in detail.Â
Fees for an IRS Payment Plan
The cost of an IRS payment plan depends on the type of plan you choose, how you apply, and whether you qualify for a fee reduction.
| Payment Plan Type | Maximum Amount Owed | Setup Fee | Payment Methods |
| Short-Term Payment Plan | $100,000 in combined tax, penalties, and interest | $0 to apply online, by phone, by mail, or in person |
|
| Long-Term Payment Plan | $50,000 in combined tax, penalties, and interest |
|
|
| Fee Reductions for Low-Income Taxpayers | Adjusted gross income at or below 250% of the federal poverty level | $43 setup fee, which may be waived or reimbursed later | Refer to IRS Form 13844 for more information |
What is a Direct Debit Installment Agreement?
A Direct Debit Installment Agreement allows the IRS to automatically withdraw monthly payments from your checking account. This ensures timely payments and helps you avoid additional penalties and interest.
Why Use Direct Debit?
- Automatic Payments: This ensures payments are made on time.
- Convenience: There is no need to manually make payments each month.
- Lower Fees: This often has lower setup fees compared to other payment methods.
Who Needs to Use Direct Debit?
- Individuals or Sole Proprietors: If your total balance is over $25,000.
- Businesses: If your balance is over $10,000.
How to Set Up a Direct Debit Installment Agreement?
- Use the IRS Online Payment Agreement tool, or submit Form 9465, Installment Agreement Request.
- Download Form 433-D from the IRS website.
- Provide the Required Information:
- Your Social Security Number or Employer Identification Number (SSN/EIN)
- Contact information
- Payment plan details
- Bank routing number and account number (a voided check can help)
Send the completed form to the IRS address provided in your payment plan notice.
Verifying Your Payment
- Check Online: Log into your account at IRS.gov/payments to review your balance and payment history.
- Processing Time: It may take up to three weeks for recent payments to appear in your account.
Using a Direct Debit Installment Agreement makes managing your IRS payments easier and helps you stay on track with your finances.
If you need assistance setting up your Direct Debit Installment Agreement or navigating the IRS process, Peter Salinger and his team are here to help. They provide expert guidance to ensure your application is handled smoothly and effectively.Â
Additionally, if you need international tax services, he is a renowned international tax advisor who can help manage your tax obligations across borders, ensuring compliance and peace of mind.
In Closing!
Applying for an IRS installment agreement can be a practical solution for managing tax debt. Staying organized with all necessary documents and information, such as tax returns and financial statements, is important.Â
Make sure to meet all submission deadlines to avoid any delays in the process. Opting for direct debit payments can help reduce fees and ensure your payments are timely. Regularly monitoring your IRS account will help you confirm that payments are processed correctly and keep you updated on your balance.
By following these steps, you can streamline the application process and improve your chances of getting your installment agreement approved. If you need assistance, Peter Salinger and his team of tax consultants can provide expert guidance, ensuring your application is accurate and complete, helping you achieve financial stability and peace of mind.
Moreover, if you need assistance with an Payroll Tax Return Services or Penalty Abatement Services, Peter Salinger has 33 years of experiences to provide the support you need to resolve your tax issues efficiently.
