How to Get on an IRS Payment Plan

An IRS installment agreement could make your tax debt manageable.

 

If you put off filing your tax return and you owe the government money, you could be in hot water. You’ll not only get penalized for filing late, you’ll have to pay interest and penalties on the money you owe.

The IRS offers several payment options and IRS payment plans for you to pay your tax liability over time if you miss the deadline. The best thing you can do is file and pay your taxes on time — and avoid paying stiff late penalties to the IRS.

Full Payment Agreements

If you don’t have the money to pay your IRS balance due when you file but will be able to pay soon, you can apply for a full payment agreement with the IRS if your debt is under $100,000. Under a full payment agreement, the IRS can offer you an extension of up to 120 days to pay your tax debt. You will not have to pay a fee to enter into a full payment agreement, but your tax debt will accrue interest and penalties until you pay it off in full. You can apply online or by calling the IRS at 800-829-1040.

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IRS Installment Agreement

If you need more than 120 days to pay your tax bill, consider applying for an installment agreement if you owe less than $100,000 — or $50,000 if you apply online — and have filed all your required returns with the appropriate IRS forms. It’s convenient to apply and pay online, but you can also call the IRS or the number on your tax bill to apply.

Here are the amounts you’ll have to pay to apply for installment agreements:

  • Regular installment agreement with direct debit: $107
  • Regular installment agreement with online payment: $149
  • Online payment agreement with direct debit: $31
  • Restructured or reinstated installment agreement: $89
  • Low-income installment agreement: $43

After you enter an installment agreement, any future IRS refund payment you are owed will be applied to your debt until it is paid off. If you owe less than $50,000, your IRS tax payment plan can spread the payments over the shorter of 72 months or the longest time the IRS has to collect the debt. If you owe between $50,000 and $100,000, your plan can spread the payments over the shorter of 84 months or the longest time the IRS has to collect the debt.

Related: 10 Dangerous Excuses For Not Filing Your Taxes

Offer in Compromise

An offer in compromise is a proposal you make to the IRS to pay less than you owe to satisfy your tax debt. An offer in compromise should be your last resort — and you should take this route only if paying the full amount will cause financial hardship.

To be eligible for an offer in compromise, you must meet four criteria. You must have:

  • Filed all your returns
  • Received a bill for at least one tax debt included on your offer
  • Paid all required estimated taxes for the current year
  • Made all required federal tax deposits for the current quarter if you own a business owner and employ people

If you haven’t made all your payments, you can make your IRS payment online through the electronic federal tax payment system or through IRS direct pay. You can also mail payments to the IRS payment address listed on your notice.

The IRS will accept an offer in compromise under certain circumstances. The three conditions are:

  1. If there is a genuine tax law dispute regarding whether you owe the tax.
  2. If the IRS doubts the tax debt is fully collectible because of a taxpayer’s limited assets and income.
  3. If requiring payment in full would cause an economic hardship or be unfair based on a taxpayer’s individual circumstances.

You make an offer in compromise by completing Form 656 and Form 433-A. If you’re making the offer because you don’t believe you owe the tax you must also complete Form 656-L. Generally, the filing fee is $186. If you’re making the offer based on doubt that you owe the money, however, or if your income is less than 250 percent of the poverty level, the filing fee is waived.

Once you make an offer in compromise you must submit a nonrefundable payment. That amount must be equal to either:

  • 20 percent of your proposed amount if you’ll be making fewer than five total payments
  • The amount of your first payment if you’ll be paying in six or more payments

If your offer is rejected, the nonrefundable application payment will be applied to your tax liability.

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