Can I Pay Taxes in Installments?

When it comes to paying your taxes, punctuality is key. Failure to pay the amount you owe by your original filing due date will tack interest and a monthly penalty on to your bill. Have you ever wondered if you can pay your taxes in installments? Find out in this article.

• How to Pay Taxes: What Are My Payment Options?
  • Payment in Full
  • Short Term Payment Plan (Full Payment Agreement)
• Can I Pay My Taxes in Installments?
  • How Can I Enter an Installment Agreement?
  • What do I need to apply online for a payment plan?
  • How Much Does an Installment Agreement Cost?
  • How Much Do I Pay Per Month?
  • What Not to Do When You Owe
• Partial Payment Tax Agreement
• What is an Offer in Compromise?
  • Working with a Tax Debt Relief Company
• Other IRS Relief Programs
  • IRS Fresh Start Program
  • Why is the IRS making this change?

Some taxpayers may even avoid filing altogether, but this only exacerbates the problem; failure to file can carry a hefty penalty on top of the interest and monthly penalties. If finding the money to pay your taxes is a major source of stress in your life, don’t fret just yet; the IRS has provided a few payment options to help ease the burden.

How to Pay Taxes: What Are My Payment Options?

Payment in Full

The first and most straightforward option is to pay in full. If paying in full is within the realm of financial possibility, it is strongly recommended as it accrues neither interest nor penalties.

There are two ways to pay in full: via mail or electronically. If you pay by mail, enclose a money order or check —made payable to the United States Treasury — alongside a copy of your tax return or notice. Provide your name, address, daytime phone number, taxpayer identification number, tax year, and form or notice number (for example, 2019 Form 1040) on the front of your payment.

If you have a debit or credit card, paying electronically is much more convenient than paying by mail — and there’s no user fee, either. When paying electronically, payments can be sent from a desktop or mobile device and can be scheduled for a certain time

If you can’t afford to pay in full or utilize a Full Payment Agreement, you may qualify for a payment plan with the Internal Revenue Service. Simply put, a payment plan is an agreement with the IRS to pay the taxes you owe within an extended but defined timeframe.

Short Term Payment Plan (Full Payment Agreement)

If you are unable to pay in full immediately, you may qualify for a 120-day extension to pay in full. This extension is called a short-term payment plan or a full payment agreement. There are no additional fees for a full payment Agreement, but interest and applicable penalties still accrue until your liability is paid. However, if you are experiencing financial hardship, full payment agreements can still put a strain on your bank account — and your peace of mind.

Can I Pay My Taxes in Installments?

If a Full Payment Agreement is not financially attainable, you may be eligible for a Long-Term Payment Plan, which entails an Installment Agreement. An Installment Agreement allows you to pay your taxes over an extended period of time while avoiding collection actions from the IRS such as garnishments and levies.

When utilizing an Installment Agreement to pay your taxes, you will still owe interest and late penalties. However, Installation Agreements allow you to break up the amount you owe into much more affordable chunks.

How Can I Enter an Installment Agreement?

You can apply for an installment agreement online, over the phone, or by mail. The application may also involve filling out various IRS forms — such as a form 9465 — which will be discussed further down the article. During the application process, the IRS will ask you how much you can afford to pay per month. They will also encourage you to pay as much as possible per installment as this reduces your late penalties and total interest.

If you allow the IRS to choose your monthly payment amount for you, they will automatically take the total amount that you and divide it by 72. The resulting figure will be your monthly payment total.

What do I need to apply online for a payment plan?

If you previously registered for an Online Payment Agreement, Get Transcript, or an Identity Protection PIN (IP PIN), log in with the same user ID and password. If you have not previously registered for an Online Pay Agreement, you will need to provide the following information:

• Name exactly as it appears on your most recently filed tax return
• Valid e-mail address
• Address from most recently filed tax return
• Date of birth
• Filing status
• Your Social Security Number or Individual Tax ID Number (ITIN)
• Based on the type of agreement requested, you may also need the balance due amount
• To confirm your identity, you will need:
  • financial account number or
  • a mobile phone registered in your name or
  • activation code received by postal mail (takes 5 to 10 business days).

How Much Does an Installment Agreement Cost?

If you are setting up a payment plan using a Direct Debit Installment Agreement (DDIA), doing so online will cost you $31. If you set it up by phone, mail, or in person, there is a $107 user fee.

If you are not using a Direct Debit Installment Agreement, it will cost a bit more. Setting up the plan online will cost $149. Doing so by phone, mail, or in-person will cost $225.

However, lower-income taxpayers may be able to reduce these fees. The IRS will use the income reported on your most recent tax return to determine if you are eligible for a fee waiver or reimbursement. If your adjusted gross income is at or below 250% of the applicable federal poverty line, you can qualify as a “low-income taxpayer”. If you enter a Direct Debit Installment Agreement as a low-income taxpayer, the IRS will waive some or all of the user fee. If you are a low-income taxpayer who is unable to enter a DDIA, the user fees will still be charged but will be reimbursed upon completion of the payment plan.

If you believe that you meet the requirements for low-income taxpayer status but the IRS hasn’t identified you as a low-income taxpayer, you can complete and submit a Form 13844 — an application for a reduced user fee. You must submit your completed Form 13844 within 30 days of your installment agreement acceptance letter.

How Much Do I Pay Per Month?

Your monthly payment amount is largely dependent on how much you owe. If you owe less than $10,000 on your taxes, the IRS is likely to approve a Guaranteed Installment Agreement. Under a Guaranteed Installment Agreement, there is no minimum monthly payment as long as you pledge to pay off your balance within three years. In order to qualify, you must have filed all income tax returns on time, paid the income tax due, and not requested an installment agreement for the prior five years.

Furthermore, the IRS must conclude from the information you provide that you are unable to pay the tax in full. You must also agree to comply with all tax laws for the duration of the installment agreement — and you must agree to pay your tax debt within three years.

If you owe over $10,000, you can qualify for a Streamlined Installment Plan. While acceptance to a Streamlined Installment Plan isn’t always guaranteed, the IRS doesn’t usually require additional financial information to approve these plans.

With a Streamlined Installment Plan, you have 72 months to pay off your balance — and there is a minimum monthly payment: the total amount you owe divided by 72.

If you owe between $25,000 and $50,000 the IRS will require you to fill out Form 9465-FS in order to request an Installment Agreement. If your request is accepted, your minimum payment will be your balance due divided by 72, as with the Streamlined Installment Plan.

If you owe more than $50,000 in taxes, the IRS will conduct a more thorough review of your finances. They will require you to submit a Form 433-A, upon which you will have to provide detailed information on your investments, assets, income, and bank accounts.

In this situation, there will be a minimum monthly payment but will be unique to a specific agreement you make with the IRS. During the payment process, you may have to sell off some meaningful assets. to pay down your outstanding balance.

It is important to note that entering into an installment agreement can provide you with ease of mind knowing that the IRS will not pursue any harsh collection methods. However, interest and penalty charges will continue to accrue on your unpaid tax balances throughout the installment period. This is because even though you are making attempts to repay the bill through a monthly payment plan, the payment of your outstanding tax balance is still late. Because of the penalty and interest charges, it’s important to pay as much as possible each month; otherwise, it will take you longer to pay off the debt in full.

Due to statutory laws, the IRS has only 10 years from the date your income tax is assessed to collect it from you. For example, if you reported an outstanding tax bill on your 2019 tax return on July 15, 2020, in most cases the IRS has until July 15, 2030, to collect the tax from you. Therefore, the IRS will require monthly payment amounts that are large enough to pay off the entire tax bill by the end of the 10-year period. If you ignore your tax bill entirely, the IRS can secure collection of the tax you owe by placing liens on your property or through wage garnishments.

What Not to Do When You Owe

If you are in a precarious financial situation and owe money on your taxes, the most important thing to do is to not panic. There are a few steps you can take to avoid exacerbating the problem; for instance, avoid making purchases on credit cards. In fact, one of the worst things you can do is putting your tax bill on a high-interest credit card. Inexorable as they are, the IRS is a fair creditor charges a far lower rate than credit card companies.

Additionally, do not take money out of retirement accounts to pay your tax bill. If you withdraw money, you may end up owing additional penalties — and you will be kicking yourself down the road.

Partial Payment Tax Agreement

If your tax debt is just not affordable for you, potentially qualify for a partial payment installment agreement. While it can be fairly difficult to qualify for one, there is no set tax debt.

The IRS may allow you to pay part of your debt if you show you can’t afford the minimum payment for a Guaranteed or Streamlined Installment Agreement Payment Plan. A Partial Payment Agreement allows you to take longer to repay, — and the IRS will evaluate your financial position every two years to see if you are better off. They will include your equity in assets in their calculations.

Unfortunately, the IRS will also file a federal tax lien to guarantee debt collection and protect their interests. It’s possible you will have to sell your property in order to pay off your tax debt.

What is an Offer in Compromise?

An Offer in Compromise, or OIC, is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. When entering an OIC, there are three options: a Lump Sum Payment, a Short-Term Periodic Payment, and a Deferred Periodic Payment. With a Lump Sum Payment, the agreed-upon amount of debt must be paid in five or fewer installments. With a Short-Term Periodic Payment, the agreed-upon debt must be paid within 24 months. And with a Deferred Periodic Payment, the agreed-upon debt must be paid within the 10-year statutory period in which the IRS can collect the debt.

Generally, the IRS does not accept an OIC if they believe the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential. OICs are subject to acceptance based on legal requirements.

If you are interested in obtaining an OIC with the IRS, take a look at the Offer in Compromise Pre-Qualifier. Then, you will need to use a Form 656 Booklet and Form 433-A. There is a non-refundable application fee of $205 unless you qualify as a low-income taxpayer as defined earlier.

Unfortunately, taxpayers undergoing open bankruptcy proceedings cannot enter an OIC. Additionally, if you are currently in an OIC, not filing a tax return can jeopardize the process — and the penalties for not filing a return are higher than those for not paying your taxes.

If applying for an Offer in Compromise agreement seems overwhelming, it may be best to enroll the help of tax professionals.

Working with a Tax Debt Relief Company

If you’re already busy juggling all of your other personal and financial responsibilities. The last thing you want is making time to interpret complex IRS tax code and processes to resolve your tax debt. And if your situation is uniquely complicated, you could be up against a brutal battle with the IRS. However, not taking action can result in much graver consequences, such as aggressive interest, collections measures, and even criminal charges.

With more than 65,000 clients and over $600 million in tax debt resolved, the experts at Community Tax are here to help:

• Our team quickly identifies the best tax relief option for you, eliminating the need for hours of self-directed research and considering the pros and cons.
• We resolve your tax issues in a timely manner without making you stay on hold with federal and state tax bureaus.
• Together, we can expedite the process by helping you gather the documents you need to apply for the appropriate tax relief solution for your needs.
• Thanks to our experience negotiating with the IRS, we’re confident in our ability to secure the best possible outcome for your situation.

Whether you need tax relief advice while preparing your taxes or need support finding the best tax debt relief solution for your needs, our team is well-equipped to apply the best strategy for your situation. Get your free consultation today.

Other IRS Relief Programs

Although payment plans and Installment Agreements can be extraordinarily helpful to many taxpayers, every situation is different. In order to cast a wide net, the IRS has put several additional tax relief programs into place to assist taxpayers with paying their dues.

IRS Fresh Start Program

If you are struggling to pay your taxes, the IRS Fresh Start program for individual taxpayers and small businesses might be able to provide the help you need. Since 2011, the Fresh Start Program has helped thousands of taxpayers pay their outstanding amounts. Now, in order to help a greater number of taxpayers, the IRS has expanded the program by adopting more flexible terms for Offer-in-Compromise (OIC) agreements. This expansion will allow some of the most financially distressed taxpayers to clear up their tax problems much more quickly than before.

Here are a few of the changes:

• Higher Tax Lien Thresholds – Generally, the IRS will not issue a tax lien on a taxpayer’s home or other assets unless the total debt owed is $25,000 or more. Before the change, the threshold was set at $5,000 or more. Since the change, taxpayers may request the IRS to remove the lien from their property if the amount of tax due is $25,000 or less and they have a Direct Debit Installment Agreement (DDIA) in place. To request the withdrawal, the taxpayer must also agree to pay the entire amount due within sixty months or before the Collection Statute expires, whichever is earlier. Once a taxpayer meets all the requirements of a direct debit payment plan, the taxpayer may complete and submit to the IRS Form 12277, Application for Withdrawal Notice of Federal Tax Lien.

• Penalty Tax Relief – The IRS Fresh Start program opened the door to more relief from tax penalties. IRS penalties can sometimes be staggering and can make some tax debt seem impossible to pay. Having more opportunities for taxpayers to reduce or eliminate the penalties accrued on tax due may save taxpayers hundreds — if not thousands — of dollars.

• Expansion of the IRS’s Offer in Compromise Program – Generally, the IRS will accept an OIC when the amount offered represents the most the IRS can reasonably expect to collect within the Collection Expiration date. With the Fresh Start program, the IRS streamlined the complicated process of submitting an offer, making it easier for taxpayers to qualify.

Why is the IRS making this change?

The IRS recognizes that many taxpayers are still struggling to pay their bills. To help ease the process, they have put in place common-sense improvements to the OIC program that more closely reflect real-world situations.
This expansion focuses on the financial analysis used to determine which taxpayers qualify for an OIC. These changes can also enable some to resolve their tax problems in as little as two years— in the past, the process could take as long as four to five years.

In certain circumstances, the changes include:

• Revising the calculation for the taxpayer’s future income.
• Allowing taxpayers to repay their student loans.
• Allowing taxpayers to pay state and local delinquent taxes.
• Expanding the Allowable Living Expense allowance category and amount.

Other changes to the program include narrowed parameters and clarification of when a dissipated asset will be included in the calculation of reasonable collection potential. In addition, equity in income-producing assets generally will not be included in the calculation of reasonable collection potential for on-going businesses.

When the IRS calculates a taxpayer’s reasonable collection potential, it will now look at only one year of future income for offers paid in five or fewer months — this is down from four years. For offers paid in six to 24 months, they will look at two years, down from five years. It is important to note that all offers must be fully paid within 24 months of the date the offer is accepted.

Information about the OIC program, including applicant qualifications, how to apply, and steps to complete the application process, Form 656-B, Offer in Compromise Booklet, and Form 656, Offer in Compromise, is available on IRS.gov.

Do you still have doubts about whether you can pay your taxes in installments? Contact us today.