IRS Online Payment Agreement
IRS Online Payment AgreementMany taxpayers find themselves in the precarious situation of owing the IRS more than they can afford to pay. The IRS offers these taxpayers the opportunity to pay off outstanding tax balances with monthly installment agreements through the IRS Online Payment Agreement program. Read on to learn more, or use the links below to jump ahead to a section of your choosing.
- What is an IRS Online Payment Agreement?
- How do I set up a Payment Plan with the IRS?
- IRS Online Payment Agreement Types
- What Happens to My Tax Refund if I have an IRS Online Payment Agreement?
- What If I Can’t Pay My Total Debt?
- Get Help with IRS Online Payment Agreements from Community Tax
What is an IRS Online Payment Agreement?As part of their Fresh Start Initiative Program, it is now easier to qualify for and obtain an installment agreement with the government agency. Thanks to this program, the qualification threshold was increased from $25,000 to $50,000, and the timeline for payments was increased from 60 months to 72 months in recent years. To make things even easier for delinquent taxpayers to get their payments in on time, the IRS now offers online applications for payment agreements. With an IRS online payment agreement, the taxpayer makes monthly payments set by the IRS until the balance is paid in full. While the payments are being made, penalties and interest will continue to accrue. Individuals must apply online and the IRS will determine using a standard template if the taxpayer qualifies for the resolution. Call (888) 676-4319 to receive assistance with online payment agreements.
How do I set up a Payment Plan with the IRS?The first thing to do when setting up a payment plan with the IRS is to file your taxes. Even if you can’t afford your total tax liability, it’s always better to file on time than pay the steep failure-to-file penalties the IRS enforces. Then, you’ll need to verify that you meet all of the eligibility requirements and fill out the necessary paperwork. Soon, you’ll be on your way to paying off your IRS tax debt!
Eligibility Requirements: Pay IRS with an Online Payment AgreementTo be eligible for an IRS online payment agreement, there are several requirements you must meet:
- All of your current and previous filing processes must be complete
- All tax returns must be filed
- If you’re an individual taxpayer, you cannot owe more than $50,000 in combined income tax, interest, and penalties incurred from outstanding tax debts
- If you’re a business, you cannot owe more than $25,000 in payroll taxes
How to Propose an IRS Payment PlanIf you’ve met the above eligibility requirements, it’s time to request an installment agreement payment plan from the IRS. It’s simple to apply for an IRS online payment agreement online through IRS.gov.
Calculating Your Monthly Payment
- When requesting your payment plan, you’ll be required to propose your monthly payment amount. Generally, taxpayers with outstanding tax liabilities should offer to pay the difference between their overall income and necessary living expenses. This is the money left over every month after you’ve paid for life’s necessities, including food, gas, rent, and more.
- It’s important to strike a strong balance on your offer. Should you propose a payment that’s too low, it won’t be accepted by the IRS and you’ll continue to accrue harsh penalties and interest rates. If you propose a payment plan that’s more than you can afford, you can find yourself unable to deliver the promised payments.
Submitting Your Installment Agreement Proposal
- Once you’ve calculated your monthly payment, it’s time to send your proposal to the IRS. The IRS favors those who are proactive about paying off their tax debt, so be sure to send your first month’s payment along with your request. Continue to make these payments while your request is pending. These voluntary offerings demonstrate your willingness and ability to stick to a payment plan and may improve the likelihood of approval.
- The approval process for an installment agreement request can take several months, so it’s important to get started paying as quickly as possible. Until you receive your written notice of approval from the IRS, it’s best to send payments to a local service. Simply use the payment slips and envelopes that came with your IRS notices.
IRS Installment Agreement FeesWhile it isn’t always free to set up a payment plan, the cost of setup is much lower than the interest rates and penalties that can build up if you ignore your tax debt. Setup fees for an IRS payment plan are as follows:
|Plan Type||Setup and Payment Method||Setup Fee|
|Short Term (120 days or fewer)||Applying online, by phone, by mail, or in-person and pay by any payment method||$0|
|Long Term (121 days or more)||Apply online and pay by automatic withdrawal||$31|
|Apply by phone, mail, or in-person and pay by automatic withdrawal||$107|
|Apply online and pay by another method||$149|
|Apply by phone, mail, or in-person and pay by another method||$225|
IRS Online Payment Agreement TypesThere are two key types of IRS online payment agreements, with varied eligibility requirements and payment stipulations. These include monthly installment plans and short-term payment plans:
Monthly Installment PlanThe most common type of IRS online payment agreement is a monthly payment setup. This option allows taxpayers to pay off their total debt in monthly installments over time, generally over a period of 72 months. When you make the request for a monthly online payment agreement, you’re committing to making the monthly payments on time until your debt is paid off completely. You are also committing to fulfill any future tax obligation, meaning you make estimated tax payments or have your employer withhold enough tax money so that your liability for future filing periods is fully paid when you file any subsequent tax return.
IRS Form 9465: How to Setup a Monthly Payment PlanIf you don’t plan to set up your payment plan online, you’ll need to use IRS Form 9465 to submit your installment agreement request.
How Do I Send in IRS Monthly Payments?You have a variety of options when it comes to making installment payments. Taxpayers can pay through money order, credit card, check, direct debit, or payroll deduction. After the IRS receives a payment, they will send a notice that details the remaining balance. The notice will also include the amount and due date for your next planned payment. If you choose direct debit, your payments will be automatically withdrawn from your bank account and you won’t receive a notice.
What Happens If I Can’t Make a Payment?If you miss a payment, have a late tax filing, or file a future tax return without paying the proper balance, you’ll be in default of your installment agreement, and the IRS will take action against you. The IRS may file a Notice of Federal Tax Lien, which is a legal claim against your assets or property. This allows the IRS to take precedence over other creditors you may owe. If you ignore the tax lien, the IRS may enforce a federal tax levy, which sees the government actually seizing your property to satisfy your debts. A levy may take the form of a wage garnishment, in which the IRS takes out a portion of your paycheck directly from your employer. It may also be seen in bank account seizure, when the government can deplete your checking or savings accounts in order to cover what you owe. If you continue to avoid payment or commit fraud in order to evade your tax liability, you could face criminal charges and jail time. Late payments also may signal to the IRS that they should perform an IRS audit. These consequences illustrate just how important it is to create a payment plan request that you can realistically fulfill for the foreseeable future. Community Tax can help.
Short-Term Payment AgreementIf you owe the IRS less than $100,000, you may be eligible for a short-term payment agreement. This allows you an extra 120 days past the due date to pay your tax liability in full. You can apply online for a short-term payment agreement online or over the phone. If you can afford to pay off your outstanding debt within 120 days, you can avoid paying the setup fee for an installment agreement. There are several things that make an IRS online payment agreement difficult to pursue on your own. First, the IRS will not fully consider all expenses—they merely look at last year’s return and determine what you can pay per month. Things such as new children, job changes, etc. are not always considered. As a result the monthly payment is likely to be higher than what it may be if you used the help of an experienced tax preparation specialist from Community Tax. Additionally an online installment agreement is not available to all individuals and businesses if they have debt above the $50,000 or $25,000 threshold.
Making Changes to an IRS Payment PlanIf you do need to make changes to your IRS payment plan, you have the option to do so through the IRS’s website, as long as you’re not paying through direct debit. If you are a direct debit payer, you’ll need to contact the IRS directly.
What Happens to My Tax Refund if I have an IRS Online Payment Agreement?If you’re participating in an online payment agreement or other form of IRS installment plan, any tax refunds you claim during this time will automatically be applied to your outstanding tax debt.
What If I Can’t Pay My Total Debt?
- Some taxpayers find that they’ll never be realistically able to pay off their total tax liability. If this is the case, our team of tax professionals can help you prepare an Offer in Compromise (OIC) request.
- An IRS Offer in Compromise is a last resort in most cases, only used after a taxpayer has tried and exhausted other payment options. If you feel that certain circumstances or life events make it impossible for you to ever pay off the full amount owed, you can request an OIC. If the IRS accepts your offer, they’re allowing you to settle your tax liability for a lesser amount.
- It’s extremely hard to get an Offer in Compromise approved; your offer must be a realistic appraisal of what you can pay. The IRS Statute of Limitations allows the government agency to pursue back tax collections from you for 10 years (and longer in some cases); if they believe they can collect the full amount owed in that time, they won’t accept your OIC offer.
- If you believe an Offer in Compromise is your only option, Community Tax can help you draft a realistic offer that will increase your likelihood of being approved. The IRS will consider your ability to pay, current income, future expected income, expenses, and any assets you currently own.
- If your OIC is approved, you’ll need to pay off your debt in one of three ways: through a lump sum payment made in five or fewer installments, through a short-term periodic payment paid off in full within 24 months, or through a deferred periodic payment in which the debt must be paid within the 10-year statutory period.