Hi, I’m Bette Hochberger, CPA, CGMA. In today’s quickie blog, I’m going to walk you through how these plans work and what you need to apply.
Managing tax payments can be overwhelming, especially if you owe more than you can pay at once. Thankfully, the IRS offers tax payment plans to help taxpayers manage their obligations.
What is an IRS Tax Payment Plan?
An IRS tax payment plan, also known as an installment agreement, allows taxpayers to pay their tax debt over time. Rather than paying a one-time payment, you can spread out payments into manageable amounts, reducing financial stress and helping you stay compliant with tax laws.
Types of IRS Payment Plans
There are two primary types of IRS payment plans:
- Short-Term Payment Plan:
   – For tax debts less than $100,000.
   – Allows you to pay your debt in full within 120 days.
   – No setup fee, but interest and penalties continue to accrue until the balance is paid in full.
Long-Term Payment Plan (Installment Agreement):
   – For tax debts less than $50,000.
   – Allows you to make monthly payments for up to 72 months.
   – Requires a setup fee, which can vary based on your payment method and income level.
How to Apply for an IRS Tax Payment Plan
Applying for an IRS payment plan is relatively straightforward. Here’s a step-by-step guide:
Determine Your Eligibility:
   – Make sure your tax returns are filed and up to date.
   – Confirm that your total tax debt is within the limits for the type of plan you are applying for.
Gather Necessary Information:
   – Social Security Number or Employer Identification Number (EIN).
   – Bank account and routing number or debit/credit card information.
   – Details about your income, expenses, and assets.
Choose Your Payment Plan:
   – Decide between a short-term and long-term payment plan based on your financial situation and the amount you owe.
Apply Online or by Mail:
   – Online: The easiest way to apply is through the IRS website using the Online Payment Agreement tool. You’ll receive immediate notification of approval or denial.
   – By Mail: You can also apply by submitting Form 9465, Installment Agreement Request, by mail. This method takes longer to process.
Set Up Your Payments:
   – Choose a payment method, such as direct debit, payroll deduction, or manual payments.
   – Make your first payment as soon as possible to avoid further penalties and interest.
Monitor Your Agreement:
   – Keep track of your payments and ensure you stay current to avoid defaulting on your agreement.
  – Report any changes in your financial situation to the IRS promptly.
Fees and Costs
There are costs associated with setting up a long-term payment plan, including:
   – Setup Fee: Varies based on your payment method (e.g., $31 for direct debit online setup, $149 for standard setup by phone, mail, or in-person).
   – Interest and Penalties: Continue to accrue until the debt is paid in full.
Benefits of an IRS Tax Payment Plan
Opting for an IRS payment plan offers several benefits:
   – Avoiding Collection Actions: Prevents the IRS from taking more aggressive collection actions, such as levies or liens.
   – Financial Flexibility: Allows you to manage your tax debt without severe financial strain.
   – Compliance: Helps you stay in good standing with the IRS by making consistent payments.
Tips for Success
– Stay Current: Make all required payments on time.
– Communicate: If your financial situation changes, contact the IRS to discuss modifying your agreement.
– Consider Professional Help: Consulting a tax professional can help ensure you choose the best plan and stay compliant.
An IRS tax payment plan can provide much-needed relief if you owe more than you can pay right now. For personalized advice and assistance, consider reaching out to a tax professional such as myself to guide you through the process.
I hope you learned something new today! As always, stay safe, and I will see you next time.
