Many Americans file their tax returns every year and find out that they owe more income tax than they can afford to pay instantly. Also, many taxpayers owe back taxes and do not know how to settle their tax debt. Fortunately, the Internal Revenue Service has an organized program that permits taxpayers to pay taxes in monthly installments rather than in a large, one-time, lump sum. This is known as Form 9465: the IRS’s monthly payment plan. If you find yourself in this situation, filing Form 9465 with the IRS will allow you to implement an installment agreement. But remember that penalties and interest on the unsettled balance will still accrue until you pay taxes owed. Who Can File Form 9465 Taxpayers who can’t afford to pay their tax obligation can file Form 9465 to set up a monthly installment payment plan if they meet certain criteria. Any taxpayer owing $10,000 or less will have their installment payment plan application automatically accepted with the following conditions:

• The taxpayer must have filed all past tax returns in order to be eligible for this agreement.
• Has not applied for an installment payment agreement within the past five years
• Is clearly not capable of paying taxes in full when they are due
• Must be able to pay the total outstanding balance within three years

If you owe more than $50,000, you won’t be able to file electronically and need to return a completed IRS Form 9465 on paper with original signatures. You can exercise this by attaching it to the front of your tax return at the time of filing. The form can also be submitted by itself at any time. Any taxpayer owing more than $50,000 must also submit Form 433-F: Collection Information Statement along with Form 9465. This also can’t be done online. Who Should Not File Form 9465 Not everyone is eligible to use the Form 9465. Individuals who are already making payments under an installment agreement with the IRS are not qualified to use Form 9465 and must contact the IRS if they need to make plans for payment of additional amounts. Individuals who should also call instead of filing Form 9465 include those who are in bankruptcy and want to make an Offer in Compromise (OIC). There are actually a range of solutions you can try if you receive an unexpected bill from the IRS. So whether you can use Form 9465 or not, you still have other options. Setting Up an Installment Plan The system requires repayments to be completed within 72 months or less, based on how much you owe. The IRS does not offer taxpayers the privilege to establish installment plans for free. A one-time setup fee is also charged. The amount is based on how you pay. These are outlined below:

• If you set up an online payment agreement and make your payments by direct debit, it costs $31
• If you don’t set up an online payment agreement, but make your payments by direct debit, it costs $107
• If you set up an online payment agreement, but don’t make your payments by direct debit, it costs $149
• If you don’t set up an online payment agreement and don’t make your payments by direct debit, it costs $225

It also costs $225 if you set up a payroll-deduction for what you owe and you’ll need to fill out IRS Form 2159: Payroll Deduction Agreement as well. The IRS relinquishes the $31 online set up fee for low-income individuals who make direct debit payments. Low income taxpayers also pay a lowered fee⁠ of $43 instead of $149⁠, if they don’t make payments through direct debit or the fee may be relinquished totally. If the IRS initially decides you don’t meet requirements for the lowered fee you can ask it to review by filing Form 13844 Application for Reduced User Fee for Installment Agreements. There is an $89 fee to improve or terminate the installment agreement, $43 for low-income taxpayers. Also, interest and penalties are applied to the unpaid balance until it is paid off. Penalties for Unpaid Taxes The IRS charges a daily Compounding interest rate which is equivalent to the short-term federal funds rate plus 3%, calculated quarterly. In addition to the interest charged, the IRS will also tax a failure-to-pay penalty of 0.5% on the unpaid balance each month or part of a month up to a maximum of 25%. For taxpayers who file on time and are on an installment plan, the penalty is reduced to 0.25% for each month the installment plan is in effect. The total penalties and interest can be easily be added up to 9% to 12% per year, and taxpayers must be ready to pay this amount in addition to their principal balance. On this ground, taxpayers are strongly advised to make more than the minimum monthly payment whenever feasible. Methods of Payment There are several methods of payment available for a taxpayer such as sending personal checks, cashier’s checks, or money orders. Furthermore, they can debit money directly from their bank accounts or pay by credit card. The Electronic Federal Tax Payment System (EFTPS) may also be used. However, a essential factor to remember is that the payment absolutely, positively must be made by the date each month that is stated in the agreement. Payments can be made between the 1st and 28th of every month. If the agreement states that the taxpayer must make the payment by the 15th of each month and payment is not made, then the agreement is immediately considered to be in default. Those who pay by check or money order are therefore advised to mail in their payments at least seven to ten business days before the due date to ensure timely receipt. However, the IRS has now upgraded its website to offer taxpayers chance to modify their installment agreements online. Individuals can now review their payment dates and even the terms of their agreement, including method of payment and other necessary details. Authorized representatives can also access the site and do this on behalf of their clients. Benefits of Installment Plans The benefit of an installment plan is quite obvious: It grants taxpayers more time to pay off their federal taxes in an organized manner. As long as the terms of the agreement are obeyed and the taxpayer is able to make their payments, any collection efforts by the IRS or private collection agencies will end. Qualified individuals can also get a six-month extension for filing their tax returns and likely paying their tax bills if they are under certain financial hardships.