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Facing a hefty tax bill from the IRS can be incredibly stressful. But a payment agreement can offer a solution. This post explores payment agreements with the IRS, including the different types of agreements, eligibility requirements, application processes, and potential consequences of non-compliance.

Table of Contents:

• Understanding IRS Payment Agreements
• Types of Payment Agreements with the IRS
  • Short-Term Payment Plan
  • Long-Term Payment Plan (Installment Agreement)
• Eligibility for a Payment Agreement with the IRS
• How to Apply for a Payment Agreement
• Consequences of Non-Compliance
• My Experience with IRS Payment Agreements

Understanding IRS Payment Agreements

If you can’t pay your federal taxes on time, a payment agreement with the IRS can help you avoid harsher collection actions. These agreements allow you to pay your tax liability in smaller, more manageable installments.

This can be a short-term solution (up to 180 days) or a long-term arrangement (also called an installment agreement). A payment agreement may involve setting up an online account with the IRS to manage your payments.

Types of Payment Agreements with the IRS

Short-Term Payment Plan

This plan gives you up to 180 days to pay your federal tax debt, including penalties and interest. These continue to accrue until the balance is paid. There’s no setup fee for this short-term payment plan.

You can apply online, by phone, or by mail. The short-term payment plan is a good option for those who can pay their balance relatively quickly.

Long-Term Payment Plan (Installment Agreement)

A long-term payment agreement (installment agreement) breaks down your tax debt into monthly payments. Several long-term payment options exist depending on how much you owe and your individual tax situation.

Guaranteed Installment Agreement

If you owe less than $10,000 in individual tax, have filed and paid on time for the past five years, haven’t had a payment agreement in the last five years, and can pay within three years, you’re guaranteed an installment agreement.

See IRM 4.20.4 for more information on guaranteed installment agreements.

Streamlined Installment Agreement

If you owe $25,000 or less (or between $25,001-$50,000 if payments are made via direct debit), you likely qualify for a streamlined agreement.

You must repay within six years (72 months) or before the Collection Statute Expiration Date (CSED), whichever is earlier. The CSED is the date the IRS can no longer legally collect the tax, usually ten years after filing the tax return.

For additional information on the CSED and paying balances due to the IRS, see this overview. You can apply online via IRS’ Online Payment Agreement tool, by phone, or by mail. You may also consider other installment agreement options.

Partial Payment Installment Agreement (PPIA)

If you can’t fully repay your debt within the CSED due to financial hardship, a PPIA might be an option. This agreement involves a financial review to determine a sustainable payment amount.

Any approved PPIA is reviewed periodically for changes in your financial circumstances. File Form 9465 with the IRS to set up this payment plan.

Offer in Compromise (OIC)

An OIC lets you settle your tax debt for less than the full amount owed. Strict requirements must be met for an OIC to be approved.

The IRS will assess factors like your ability to pay, income, expenses, and asset equity. An OIC isn’t a payment plan itself, but can serve as an alternative to defaulting on a payment agreement.

Eligibility for a Payment Agreement with the IRS

Most taxpayers are eligible for a payment agreement. You must have filed all required tax returns and not be in an open bankruptcy proceeding.

Specific eligibility criteria for different plans depend on how much you owe. The amount you owe may qualify you for certain programs such as a short-term payment plan.

How to Apply for a Payment Agreement

You can apply for a payment agreement online (for amounts under $50,000 for individuals or $25,000 for businesses) through IRS Direct Pay. Direct Pay offers various electronic federal tax payment options including paying via your bank account.

If applying for a direct debit payment plan using Form 433-D, you’ll need your banking details. For balances over $25,000 for individuals (or $10,000 for businesses applying online), direct debit is required. Direct debit agreements can simplify payments.

You can also apply over the phone or mail Form 9465, Installment Agreement Request, with your financial information. Setup fees are typically higher when applying via phone or mail versus online.

Learn more about Form 9465. Low-income taxpayers may be eligible for reduced user fees. See IRS Form 13844 for more information on user fee reductions.

Consequences of Non-Compliance

Failing to meet the terms of your payment agreement with the IRS, like missing payments or not filing returns, will lead to default and possible termination.

If your agreement is terminated, the IRS can take stronger collection actions like levying your assets. Be sure to keep up with any notices or letters regarding your agreement, such as payment reminders, rejections, and confirmations. Maintaining compliance with your agreement is essential for your financial security. For more about this, please visit this link. It is helpful to keep track of the current tax year so that all of your taxes are paid.

If your payment agreement request is rejected, you have 30 days to appeal. If you default after your agreement begins, you also have 30 days from the date of the notice to file an appeal. See IRS Publication 594 for details on appeals.

Dealing with IRS tax debt is undeniably stressful. A payment agreement, however, provides a crucial resource. By understanding how payment agreements work, and taking the required steps to apply, taxpayers can gain a sense of control and financial peace of mind. There are multiple payment options to fit many taxpayers’ individual circumstances. This could include utilizing an online payment agreement tool, setting up payments from your bank account, making partial payments, using a debit/credit card, paying with a money order, and requesting an installment agreement.