When you can’t afford to pay your taxes in full, one of your options is to enter a payment plan or installment agreement with the IRS. An installment agreement typically lets you pay off your tax debt over a period of time and avoid the extra interest and penalties you might be charged if you waited.
Fees for an Installment Agreement
The IRS charges a fee to set up an installment agreement. The fee is $105 if you plan to send your payments to the IRS but you can lower it to $52 if you let the IRS withdraw the payments from your bank account. You may be able to get a reduced fee of $43 if your income is within certain levels.
How to Set Up an Installment Agreement
You can set up your installment agreement online if your tax debt, including penalties and interest, is equal to or less than $25,000. You don’t have to wait until you get a bill from the IRS to set up your payment agreement. But, if you’ve already received a bill from the IRS, you can call the number on your bill. Finally, you can complete IRS Form 9465, Request for Installment Agreement and mail the finished form to the address on your bill.
An additional form is required to set up an installment agreement on a tax debt that’s greater than $25,000. You’ll have to complete a Form 433F Collection Information Statement to help the IRS figure out how much you can afford to pay on your taxes. Fill out this form and Form 9465 and send both to the IRS to request a payment plan on your tax debt that is greater than $25,000.
You must make all your payments on time. If you miss a payment, your agreement could go into default. At that time, the IRS may take levy actions or file a Federal Tax Lien against you. A tax lien would likely be added to your credit report, would then hurt your credit score and negatively affect your ability to get credit in the future. A bank levy would allow the IRS to take money from your checking account until the tax debt is repaid or you’ve taken the steps necessary to reinstate your defaulted agreement.
Any tax refunds that are due to you from future tax filings will be applied to the tax you owe. You may be disappointed that you’re not getting that tax refund money, but it will likely help you pay off your tax debt sooner and end your installment agreement faster than you originally calculated.
If you can’t afford to pay your tax debt under an installment agreement, you can try to work out a settlement with the IRS via an Offer in Compromise. If your Offer is successful, you will pay just a portion of your tax debt and the IRS will cancel the remainder of the balance.