What is an IRS Payment Plan?
An IRS payment plan, also known as an installment agreement, takes your tax debt, including interest and penalties, and spreads it out over a series of monthly payments. Payment plans can help you avoid collection actions like levies and wage garnishments, but interest and a small penalty continue to accrue while you are paying off the debt.
There are a few key things to remember if you’re considering requesting a payment plan:
- Payments are made every month based on your balance due and ability to pay.
- You must stay current with future tax filings and payments.
- Missing payments or failing to comply with requirements may result in the agreement defaulting.
Unfortunately, a significant portion of taxpayers who set up monthly payments go into default – that’s because they set up plans they can’t afford to pay, often when they may have qualified for another, less expensive resolution option.
At BestTaxPro™, we set our clients up for long-term success by pursuing the best option for their unique situation and ensuring they don’t take on unaffordable payments.
Situations Where Payment Plans Are Often Used
IRS installment agreements are a convenient option for those who need flexibility – taxpayers who have extra money to put towards their tax debt but cannot pay it off in one lump sum.
Common scenarios where payment plans are useful include:
- Owing back taxes from prior years
- Receiving a large tax bill after an audit or adjustment
- Financial hardship that prevents full payment
- Businesses juggling past tax liabilities and current operational costs
- Individuals and businesses trying to avoid escalating IRS collection efforts
In each of these situations, taxpayers often just need a little extra breathing room in their budget while still addressing their tax debt. An installment agreement can provide that.
How IRS Payment Plans Work
IRS payment plans are fairly straightforward, as the agency tries to make the process as easy to navigate as possible. The process typically involves:
- Choosing a payment plan: Most individual taxpayers can apply online, but the IRS does limit online applications to those who owe less than $50,000 total. If you owe more than $50,000, you may need to apply by phone, mail, or have a tax professional apply on your behalf.
- Requesting the agreement: To apply online, you just sign into your IRS account. If you are not able to apply online, you can apply by filling out Form 9465 and any required financial statements. Then, you can mail in these documents or call the IRS with the information.
- Getting the IRS’s decision: If you apply online or by phone, you’ll typically get a decision immediately. Otherwise, you may need to wait for the IRS to inform you of its decision. Should they approve your payment plan application, make sure you know when your first payment is due.
- Adjusting if necessary: Should your request be denied, you may be able to make adjustments to your application and reapply. The IRS may need a different payment amount, more financial documentation, or more information on your application forms. Or, you may have to pay in full or explore another option.
This process can be confusing and error-prone. Our services can help you protect your finances while getting relief from your IRS tax debt. We can also help you understand how a payment plan affects your finances – for example, if you’re applying for a mortgage, the lender will consider the payments while reviewing your application.
Types of IRS Payment Plans
There are several types of payment plans that you may qualify for. Reviewing these options before requesting one can help you decide how to move forward.
- Short-term payment plan: Taxpayers can take up to 180 days to pay off their tax balance if they cannot pay it off by the due date. This option does not have fees.
- Simple Payment Plan: Most taxpayers who owe under $50,000 qualify for this option. The proposed payment amount must pay the debt in full by the Collection Statute Expiration Date, which is usually 10 years from the date of assessment. However, there are actions that can pause the ten-year window, so it’s important to check your tax transcript.
- Standard installment agreement: Standard or non-streamlined installment agreements are used for larger balances and often require a more detailed financial disclosure form, especially if you owe over $250,000 or have a revenue officer assigned to your account.
- Business payment plans: Businesses with tax debt can qualify for installment agreements, but the terms and duration are often different from those for individual payment plans. These installment agreements also allow businesses to catch up on payroll tax debt.
- Partial payment installment agreement: There are situations where taxpayers cannot pay their tax debt in full by the CSED, but they can still pay some amount to their tax debt each month. In these situations, the IRS would rather receive partial payment than nothing at all. The IRS accepts partial payments until the CSED (or until the taxpayer’s financial situation improves) and then writes off the remaining tax debt.
Don’t worry – we’ll leverage our expertise to help you find the right option for your situation.
Payment Plans for Minnesota
If you have state tax debt in addition to IRS debt, we can help you navigate options with the Minnesota Department of Revenue. Minnesota DOR payment plans put you in a position to fulfill your state tax obligations without having to pay in full. We strive to assist you in navigating both systems so you can structure payments in a financially realistic way.
How BestTaxPro™ Helps Establish the Right Payment Plan
At BestTaxPro™, we know that the details matter, and we’re here to help you avoid unaffordable payments or find the optimal solutions for your tax debt. Our comprehensive approach includes:
- Obtaining and reviewing your IRS transcripts so we know how much you owe, your filing status, and when each year of tax debt expires.
- Ensuring that all required tax returns are filed, so more resolution options are available.
- Analyzing your income, assets, debts, and expenses to assess payment options.
- Anticipating the IRS’s questions and decisions so you don’t have to worry about unexpected surprises or rejections.
- Communicating with you every step of the way.
During this process, we don’t just look at payment plans as a potential solution for your tax debt. The IRS has several other relief programs, and if one of those is a better fit for you, we’ll explain it as a potential option for you.
If a payment plan is the best option for you, we will take care of:
- Negotiating directly with the IRS
- Structuring a monthly payment that fits your financial needs
- Protecting your financial stability while still addressing your tax debt.
The goal isn’t just to get approved; it’s to get approved for a payment plan that you can maintain. Often, that means setting up a low monthly payment – then, you can pay extra if you want to pay it off faster, but you don’t have to worry about defaulting since the required minimum payment is as low as possible.
Benefits of Professional Representation
Working with a tax professional often makes a significant difference in the outcome of your tax case. Some of the main advantages of working with a tax professional include:
- Avoiding unrealistic payment commitments that set you up for a defaulted plan
- Checking all potential relief options
- Minimizing stress by having someone else communicate with the IRS
- Securing a manageable payment agreement
- Getting ongoing guidance to stay compliant
Alternatives to Monthly Payment Plans for Tax Debt
Payment plans aren’t always the best option. If you cannot afford a monthly payment, cannot realistically pay off your tax debt, or cannot make any payments, we can help you explore options like:
