Detailed IRS Tax Payment Plans
Even if you do not have the money to pay the taxes you owe now, you should file a tax return on time or as soon as possible, or at least file a tax extension by Tax Day.
The IRS Tax Penalties For Not Filing A Tax Return Are Higher Than the Penalties for Not Paying Taxes: Estimate Your Potential Tax Penalties
Start and File your Tax Return first. Once your return is accepted by the IRS, and you don't have the funds to pay your taxes now, you should look at the tax payment plans listed below. These plans enable you to work with the IRS to pay your tax debt over time rather than all at once.
Short-Term Extension of Time to Pay
If you will be able to pay the full amount of the taxes you owe within 120 days, complete an Online Payment Agreement on the IRS website to apply for a short-term payment extension. Once you submit your request, you should receive immediate notification of approval. There is no extra fee for an extension to pay. If you are granted an extension of time to pay, you may still owe interest on your tax debt, but you will avoid incurring the application fee for requesting an installment agreement.
Installment Payment Plan Agreement
An installment payment plan agreement allows you to pay your debt over time in monthly installments if you are not able to make a single lump sum payment of your full tax debt. The easiest and fastest way to apply for an installment plan and receive IRS approval is to go to the IRS Online Payment Agreement (OPA) page of their website:
Apply for an IRS Installment Payment Agreement
Alternatively, you may apply for an installment plan by completing and mailing Form 9465, Installment Agreement Request.
Here are other factors to consider if you participate in an installment plan agreement:
- Any tax refunds that you claim will still be applied to your outstanding tax debt.
- The easiest way to ensure timely payments is to have them directly debited from your bank account on a set schedule.
- If you wish to enter into an installment agreement and cannot use the IRS Online Payment Agreement (OPA), fill out Form 433-D, Installment Agreement, and attach it to your Form 9465.
Installment Payment Plan Agreement Requirements
To qualify for an installment payment plan agreement, you must have filed all of your tax returns. You might also be eligible for an installment agreement if:
- You owe $50,000 or less in taxes.
- You have filed your tax return and paid your taxes on time for the last 5 years.
- You agree to pay all of your outstanding debt within 30 days.
- You agree to comply with all current tax laws during the period of the agreement.
- You supply the IRS with all requested information while they evaluate your financial situation.
- The IRS determines that you will be unable to pay the full amount due by the deadline without undue hardship.
If you do not meet the installment plan agreement requirements, the IRS will still assess your case and may grant you an installment agreement. You will receive written confirmation from the IRS within 10 days if the IRS approves your request for an installment plan.
Installment Payment Plan Agreement Fee
The IRS will charge a one time user fee of $120 for a request to enter into an installment agreement. If you set up a direct debit installment plan, the user fee will be reduced to $52. The user fee will generally be added to the total amount of back taxes, penalties, and interest that you owe. If you break your agreement by missing a payment but choose to reinstate it, or if you restructure the agreement, you will be charged an additional $45 user fee. If you default on an installment payment plan, additional penalties may be assessed and your credit score may suffer.
If your annual income is below 250% of the national poverty guidelines established by the Department of Health and Human Services, you may qualify for a reduced user fee of $43. To apply for the reduced user fee, use Form 13844, Application for Reduced User Fee for Installment Agreements.
Offer in Compromise
If special circumstances have arisen in your life that would make it impossible for you to ever pay the full amount of taxes you owe, you may apply for an Offer in Compromise (OIC) with the IRS. The OIC will allow you to settle your tax debt for a smaller amount than you owe.
In order for the IRS to accept your OIC, the offer must be a realistic appraisal of what you can actually pay. By law, the IRS has 10 years to collect back taxes and they will only consider an OIC if they believe they will be unable to collect the full amount owed within that period of time. The IRS will take many factors into consideration when deciding if you can pay the full amount, including:
- Your ability to pay (determined by prior-year earnings and your future earning potential),
- Your current income,
- Your expenses, and
- Your currently held assets.
When The IRS Will Accept Your Offer in Compromise
There are three claims which may serve as the basis for your Offer in Compromise to be accepted:
- Doubt as to liability: There is doubt about whether you actually owe the taxes in question.
- Doubt as to collectability: There is doubt that you could ever pay off the full amount of your tax debt (your tax debt is greater than your assets plus your potential future income).
- Effective tax administration: There is no doubt about liability or collectability, but there are special circumstances affecting your ability to pay.
When the IRS Will Not Accept Your Office in Compromise
The IRS will NOT approve an Offer in Compromise if the agency believes that:
- The amount you owe can be paid in a lump sum or
- The amount owed can be paid in full through an installment agreement.
They will also not accept your Offer in Compromise if you fail to provide:
- Your first payment or
- Any requested financial information within the time the IRS gives you to send it.
How to Pay an Offer in Compromise
There are three ways to pay your Offer in Compromise, each with its own restrictions:
- Lump Sum Payment: The full debt must be paid in 5 or fewer installments.
- Short-Term Periodic Payment: The debt must be paid within 24 months.
- Deferred Periodic Payment: The debt may be paid in more than 24 months, but must be paid within the 10-year statutory period which the IRS has to collect the debt.
How to Apply for an Offer in Compromise
To apply for an Offer in Compromise, complete and mail Form 656-B, Offer in Compromise Booklet. If the IRS approves your offer in compromise and your financial situation subsequently improves, they have the right to increase the amount of your installment payments.
Offer in Compromise Fee
There is an application fee of $186 for making an offer in compromise. For the IRS to consider your offer, you must include the fee with your Form 656-B, as well as the first 20% of your Lump Sum Payment offer, or the first installment of your Periodic Payment offer. Also, you must have filed all of your currently due tax returns before submitting an offer in compromise. Furthermore, you must fill out and attach Form 433-F, Collection Information Statement, if you are requesting an OIC based on a claim of doubt as to collectability or effective tax administration. You do not need to include an initial payment if you are making a claim based on doubt as to liability.
What Happens When the IRS Does Not Accept an Offer in Compromise?
If the IRS rejects your OIC, they will keep your application fee and first payment, as well as apply the funds to your outstanding tax debt. You may repel a rejection by filling out Form 13711, Request for Appeal of Offer in Compromise. This must be done within 30 days after receiving the rejection. If you default on an OIC payment plan, the IRS may assess additional penalties and may inform the credit reporting agencies (thus damaging your credit rating).
Additional Tax Payment Tips