Payment Plan For Taxes: Everything You Need To Know

(July 2024)

Payment Plan For Taxes: Everything You Need To Know

In This Article

If you find yourself in a situation where you owe the Internal Revenue Service’s (IRS) more money than you can pay in one go, don’t panic. The IRS understands that unexpected financial hardships can happen to anyone and offers a solution in the form of a payment plan. In simple terms, an IRS payment plan allows you to pay off your tax debt in manageable installments over time.

What’s an IRS payment plan? An IRS payment plan is a deal you make directly with the IRS to settle your federal tax bill over time. You have two choices: a short-term plan, letting you pay in 90 or 180 days, or a long-term one (also called an installment agreement), spreading payments monthly. 

The short-term option is like a quick payoff, while the long-term is for those needing more than 180 days. Which to pick? It depends on your owed amount and how fast you can manage to clear your balance. It’s all about finding the plan that suits your situation and payment pace.

  1. Why Do You Need an IRS Payment Plan?
  2. Types of Payment Plans
  3. How to Apply
  4. Costs and Fees
  5. What You Need to Know Before Applying
  6. What Happens If You Miss Payments?

Recap

1.  Why Do You Need an IRS Payment Plan? 

When you owe taxes to the IRS that you can’t pay in full, you may face penalties and interest on the unpaid amount. Facing tax debts with the IRS prompts the need for an IRS payment plan. When unable to settle the full amount owed, penalties and interest may accrue. 

Establishing a payment plan not only helps evade or diminish these financial repercussions but also empowers you to clear your tax debt within a manageable budget. This prevents the IRS from resorting to more assertive collection measures. Embracing this option can alleviate the stress associated with unpaid taxes and foster a more controlled resolution of your financial obligations to the IRS.

2.  Types of Payment Plans 

There are different types of payment plans offered by the IRS, each with their own eligibility criteria:

  • Short-Term Payment Plan: This plan allows you to pay off your tax debt in 180 days or less. No setup fee is required, but penalties and interest can continue to accrue before you pay the full amount. 
  • Long-Term Payment Plan: If you need more than 180 days to settle your tax debt, a long-term payment plan may be the best option. There’s a setup fee for this plan, and you can accrue penalties and interest before the full amount is paid.
  • Offer in Compromise: In some cases, the IRS may accept a reduced amount to settle your tax debt through an offer in compromise. This option is available to people who are facing extreme financial hardship.
  • Partial Payment Installment Agreement (PPIA): With a PPIA, you can make smaller monthly payments based on what you can afford, even if it won’t fully pay off your tax debt.

3.  How to Apply 

To apply for an IRS payment plan, you can use one of the following methods:

  • Online Payment Agreement: If you owe $50,000 or less in combined individual income tax, penalties, and interest, you can apply for a payment plan online through the IRS website.
  • Form 9465: For all other payment plans, including those exceeding $50,000, you need to complete Form 9465, the Installment Agreement Request, and mail it to the address listed on the form.

To set up an IRS payment plan online, use the same credentials from your IRS account for tax-related services. If you haven’t registered, create an ID.me account, verifying your identity with a valid email, photo ID (driver’s license, state ID, passport), and your Social Security number or tax ID. Ensure access to a smartphone or webcam for identity verification and a phone or email for multi-factor authentication. 

This process streamlines your experience if you’ve previously obtained a tax transcript or identity protection PIN. Secure your financial path with this user-friendly method, meeting IRS requirements seamlessly. As you embark on this journey, gather the specified documents and navigate the process confidently, securing your financial future.

4.  Costs and Fees 

Setting up an IRS payment plan comes with associated costs and fees, which depend on the type of plan you choose.

  • Short-term payment plan: A short-term payment plan is ideal if you owe less than $100,000, have filed all tax returns, and can settle the debt within 90 or 180 days.
  • Long-term payment plan: A long-term payment plan suits you if you have a tax bill of $50,000 or less, have fulfilled tax return obligations, and require more than 180 days for payment.
  • Offer in Compromise: There is a non-refundable application fee of $205, but it may be waived for low-income individuals.

This fee is an essential aspect to consider when exploring tax resolution options. By understanding these details, you can navigate the IRS payment landscape more confidently, ensuring compliance while managing your financial obligations effectively.

5.  What You Need to Know Before Applying 

Before you apply for an IRS payment plan, there are a few crucial points to consider:

  • File Your Tax Return: Make sure all your tax returns are filed before requesting an installment agreement. The IRS won’t approve a payment plan if you have any unfiled tax returns.
  • Know Your Budget: Understand how much you can realistically afford to pay each month towards your tax debt. This can help you determine the type of payment plan that suits your financial situation.
  • Stay Compliant: Once your payment plan is in place, it’s essential to stay compliant with your tax obligations. This means filing future tax returns on time and paying any new tax liabilities when due.
  • Continued Accrual of Penalties and Interest: While on a payment plan, penalties and interest can accrue on the unpaid balance. It’s important to pay on time and in full to minimize these charges.

6.  What Happens If You Miss Payments? 

If you ever find yourself unable to make a payment on your IRS payment plan, swift action is crucial. Failure to meet payment obligations could trigger additional IRS measures, such as seizing funds from your bank accounts or garnishing wages. 

So, promptly reach out to the IRS if you’re facing difficulties with payments. By initiating contact, you open the door to discussing your situation, exploring potential solutions, and potentially adjusting your existing payment plan. 

The key is to address the issue head-on, demonstrating resolution of any challenges. Remember, communication is key to maintaining a manageable arrangement with the IRS. So, don’t hesitate to connect with the IRS at the earliest sign of financial strain to ensure a smoother process and protect your financial well-being.

Recap

Establishing an IRS payment plan is an important step towards managing your tax obligations seamlessly. By opting for this structure, you gain the flexibility to settle your tax liability over time, mitigating immediate financial strain. 

The IRS offers various plans, each tailored to your circumstances. It’s crucial to assess your eligibility and choose a plan that aligns with your financial capacity. Keep in mind that prompt communication with the IRS is paramount. 

Timely initiation of a payment plan not only prevents potential penalties but also fosters a cooperative relationship with the IRS. Stay informed about the associated interest rates and fees. 

Remember, navigating the IRS payment plan ensures financial responsibility while alleviating the stress of a lump-sum payment. Armed with this knowledge, you can confidently approach the IRS payment plan for taxes with informed decision-making and fiscal prudence.

Remember to stay in communication with the IRS and fulfill your obligations to ensure a successful and manageable resolution to your tax debt. Also, consider seeking professional advice.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.

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