Can You Afford the IRS Payment Plan Fees? Discover Your Options

Tax debt can quickly become overwhelming, adding stress to your already busy life. Maybe you’re dealing with unexpected tax bills, penalties, and interest that keep piling up, making it feel impossible to catch up. You might be managing routine tax filings and payments, but significant tax debt introduces a whole new set of challenges.

Setting up a payment plan with the Internal Revenue Service (IRS) can help, but it’s important to understand that these plans come with their own set of fees and requirements. These additional costs can add to your financial burden if not managed properly. Knowing the specifics of these fees is essential to making informed decisions and avoiding further financial strain.

Fortunately, the IRS provides a range of payment plans and alternatives designed to accommodate different financial situations. The costs associated with IRS payment plans can vary, but there are ways to minimize these fees and manage your debt effectively. Knowing your options can help you make an informed decision that suits your financial needs.

In this guide, we’ll break down the fees for IRS payment plans, explain how to apply for them, and discuss what to do if a payment plan isn’t the right fit for you or how to change IRS payment plan. Keep reading!

What is a Payment Plan?

A payment plan is an arrangement with the IRS that allows you to pay your owed taxes over a longer period. If you think you can pay off your taxes within this extended period, you should consider setting up a payment plan.

Setting up a payment plan can be done online, by phone, or in person. The IRS offers two types of payment plans:

Short-Term Payment Plan

A short-term payment plan lets you pay off your tax debt within 180 days.

Eligibility:

• You owe less than $100,000 in combined tax, penalties, and interest.
• You have filed all your tax returns.

Long-Term Payment Plan

A long-term payment plan, also known as an installment agreement, allows you to pay your tax debt in monthly installments over a period of up to six years.

Eligibility:

• You owe $50,000 or less in combined tax, penalties, and interest.
• You have filed all your tax returns.

If you meet these criteria, you can apply for a payment plan online using the IRS’ Online Payment Agreement tool, and if you don’t qualify online, you may still apply by mail or phone. 

The right plan for you will depend on how much you owe and how quickly you can pay it off. By sticking to your payment plan, you can avoid the IRS placing a tax lien or levy on your property.

Payment Plan Costs and Fees 

When the IRS approves your payment plan (or IRS installment agreements), you will be charged a setup fee to cover the cost of setting up the agreement. Here’s a clear breakdown of how much is IRS payment plan costs:

Short-Term Payment Plan (180 days or less) Costs

• Setup Fee: There is no setup fee.
• Payment Methods:
  • Withdrawals from your checking or savings account (Direct Pay).
  • E-pay online or by phone via the IRS’ Electronic Federal Tax Payment System.
  • Check, money order, or debit/credit card.

Long-Term Payment Plan (more than 180 days)Costs

• Setup Fees:

Automatic Debit Withdrawals:

• $31 setup fee to apply online.
• $107 setup fee to apply by phone, mail, or in person.
• The setup fee may be waived for low-income taxpayers.

Other Payment Methods (e.g., Direct Pay, EFTPS, money order):

• $130 setup fee to apply online.
• $225 setup fee to apply by phone, mail, or in person.
• $43 setup fee for low-income taxpayers; may be reimbursed later.

For individuals who set up a payment plan online, balances over $25,000 must be paid by Direct Debit. For businesses, balances over $10,000 must be paid by Direct Debit.

You can apply for these payment plans online using the IRS’ Online Payment Agreement tool, or by phone or mail by submitting Form 9465, Installment Agreement Request.

Additional Fee-Related Details

• Debit or Credit Card Payments: If you make your payments with a debit or credit card, you’ll have to pay a processing fee. The charge for debit cards is around $2 per payment, while the charge for credit cards can be nearly 2% of the payment.
• Balances Over $25,000: If you owe more than $25,000, you must make your payments via automatic withdrawals from a bank account (Direct Debit).

If you’re wondering how much is interest on IRS payment plan, choosing an IRS payment plan can be a sound financial decision. With interest rates at 8% and a reduced penalty rate of 0.25% per month, this option may be more economical than securing a personal loan. This highlights the potential savings in ongoing costs, making it a viable solution for managing tax debts effectively.

How to Apply for IRS Payment Plan?

If you qualify for a payment plan, the quickest way to apply is online through the IRS’ application portal. However, you can also apply by phone or mail.

Applying for an IRS Payment Plan Online

If you already have an online IRS account for a tax transcript or an identity protection PIN, you can log into the IRS’ Online Payment Agreement tool using the same user ID and password. If not, you’ll need to create an ID.me account to confirm your identity. You’ll need the following information:

• A valid email address and access to it.
• Photo identification (driver’s license, state ID, passport).
• Your Social Security number or individual tax ID number.
• Access to a smartphone or webcam to verify your identity.
• Access to a phone or email for multi-factor authentication.

For verifying your information or accessibility help, visit the ID.me help page.

Applying for an IRS Payment Plan by Phone or Mail

You can also apply for a payment plan by filing Form 9465 with the IRS. Alternatively, you can call the IRS’ main phone line at 800-829-1040 to set up a new plan or revise an existing one. For business payment plans, call 800-829-4933. Make sure to verify these numbers before dialing.

These options allow you to easily set up a payment plan that suits your needs and effectively manage your tax debt.

How do I make changes to an IRS installment agreement?

The IRS’ payment agreement tool allows you to make several adjustments to your existing installment agreement. You can:

• Change your monthly payment amount.
• Update the monthly due date.
• Sign up for automatic withdrawals.
• Reinstate a payment plan if you’ve fallen behind.

If your new monthly plan doesn’t meet IRS requirements, you may need to adjust the payment amount. If you find the monthly payment amount unaffordable, you may need to fill out Form 9465 and Form 433-F (collection information statement).

Remember, interest and some penalty charges will continue to accrue on the amount you owe until the balance is paid in full.

IRS Alternatives for Managing Tax Debt

If you find that an IRS payment plan is not feasible for your financial situation, the IRS offers several alternatives to help manage your tax debt. Here are the options provided by the IRS:

Offer in Compromise (OIC) 

An IRS Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability or if paying it would create a financial hardship. To qualify:

• Submit IRS Form 656, Offer in Compromise, and Form 433-A (OIC) for individuals or Form 433-B (OIC) for businesses.
• Provide detailed financial information for the IRS to evaluate your ability to pay.
• Use the IRS Offer in Compromise Pre-Qualifier tool to see if you may be eligible.

Currently Not Collectible (CNC) Status

If you are unable to pay any of your tax debt due to financial hardship, you can request that the IRS place your account in Currently Not Collectible status. This means the IRS will temporarily delay collection until your financial situation improves. To qualify:

• Submit Form 433-F, Collection Information Statement, to demonstrate your financial hardship.
• Note that while in CNC status, penalties and interest will continue to accrue, and the IRS may file a tax lien.

Penalty Abatement 

The IRS may waive penalties if you have a reasonable cause for failing to file or pay on time. This option does not eliminate the underlying tax debt but can reduce the overall amount owed. To request penalty abatement services:

• Provide a written explanation of the circumstances that prevented you from complying with your tax obligations.
• Submit Form 843, Claim for Refund and Request for Abatement, if applicable.

Temporary Delay of Collection 

If the IRS determines that you cannot pay any of your tax debt, it may delay collection until your financial situation improves. This is similar to CNC status, where the IRS will review your financial situation periodically.

End Note!

This blog has provided valuable insights into managing IRS payment plan fees and finding the right options for your financial situation. As you move forward, staying organized is important. Keep track of all your tax documents and correspondence from the IRS in one place to make it easier to manage your payments and respond to any requests.

It’s also important to be proactive. Addressing your tax debt sooner rather than later gives you more options to manage and reduce your debt effectively. Budgeting wisely is another key aspect; make sure you allocate funds for your IRS payments each month to stay on track and avoid missing payments.

Regularly monitoring your payment plan ensures that everything is going smoothly and allows you to make adjustments if necessary to meet your obligations.

Remember, seeking help from a professional is always a good idea. Peter Salinger can provide personalized advice and guide you through the process, helping you make the best decisions for your financial health. 

Beyond the IRS payment plan assistance, Peter Salinger also offers Payroll Tax Return Services and Tax Preparation Services, with the expertise to guide yo