There are three main options: a short-term plan to pay in full within 180 days, a Simple Payment Plan for most individuals owing $50,000 or less, and other installment agreements for larger or more complicated balances, which usually require a financial statement. Some individuals with $10,000 or less of income tax are entitled by law to a "guaranteed" agreement. Interest and some penalties run until the balance is paid, and long-term plans carry an IRS setup fee of up to $178.
A payment plan is the most common way to resolve a balance, and choosing the right type affects how much financial detail you must give the IRS and whether a lien is filed. Kathryn Meyer's page on IRS collections and enforcement explains how payment plans compare with the other alternatives.
How to set up a plan, step by step
- Get the full balance. Your online account or latest notice shows tax, penalties and interest for each year.
- File anything missing. Long-term plans require that you be current on filing and payment requirements.
- Pick the plan type from the table below, based on the balance and how fast you can pay.
- Apply. Individuals can apply online, by phone, by mail with Form 9465, or in person; businesses call the number on the notice or visit a Taxpayer Assistance Center.
- Choose how to pay. Automatic monthly payments from a checking account (a Direct Debit Installment Agreement) or another method.
- Keep it current. Pay each month, file and pay new returns on time, and update your address.
Which plan fits your balance?
| Plan | Who generally qualifies | Key terms | Source |
|---|---|---|---|
| Short-term plan | Anyone who can pay in full within 180 days; individuals can apply online if they owe less than $100,000 | Up to 180 days to pay | IRS payment plans page; Topic 202 |
| Simple Payment Plan | Individuals owing $50,000 or less in assessed tax, penalties and interest; businesses owing $50,000 or less, or $25,000 or less if trust fund taxes are included | No collection information statement, lien determination or trust fund penalty determination; must pay in full by the collection deadline | IRS Simple Payment Plans page |
| Guaranteed installment agreement | Individuals with $10,000 or less of income tax (not counting interest and penalties) and a clean five-year record | Paid in full within 3 years; the IRS must agree | IRC 6159(c); Topic 202 |
| Other installment agreements | Balances that do not fit the plans above | A collection information statement (Form 433-F, 433-A or 433-B) and a lien determination may be required | Topic 202 |
| Partial payment agreement | Taxpayers who cannot pay in full before the collection deadline | Monthly payments that will not clear the balance; reviewed at least every 2 years | IRC 6159(a), (d) |
For long-term plans, the IRS requires that you be current on filing and payment requirements before a request is considered, and taxpayers in an open bankruptcy generally are not eligible. The IRS says more than 90% of individual taxpayers qualify for a Simple Payment Plan, which can be set up through an online account, by phone or at a Taxpayer Assistance Center.
When does the guaranteed agreement apply?
Section 6159(c) requires the IRS to accept installment payments of an individual's income tax if, on the date of the request:
- the tax owed, not counting interest and penalties, is $10,000 or less;
- during the previous 5 years you (and your spouse, for a joint return) filed all income tax returns, paid the tax shown on them, and did not have an installment agreement for income tax;
- you are financially unable to pay in full when due;
- the agreement pays the full amount within 3 years; and
- you agree to comply with the tax laws while it is in effect.
What if the balance is larger or harder to pay?
Above the Simple Payment Plan limits, the IRS may require a collection information statement and a decision on whether to file a notice of federal tax lien. It measures what you can pay against its Collection Financial Standards, the allowances for housing, transportation, food and other necessary expenses. Under the IRS's "six-year rule," if the full balance, including penalties and interest, can be paid within six years, it allows living expenses above the standards and other payments such as minimum student loan or credit card payments, and you provide financial information without substantiating reasonable expenses. The standards and the six-year rule are explained in how the IRS decides what you can afford to pay.
If even that cannot pay the debt before the collection period ends, a partial payment agreement is possible. The law allows agreements for "full or partial collection," and the IRS must review partial ones at least every two years. These agreements interact closely with the 10-year collection deadline, discussed in how long the IRS has to collect a tax debt.
What does a plan add to what you owe?
| Charge | During a payment plan | Source |
|---|---|---|
| Interest | Continues until the balance is paid in full; the longer the plan, the more you pay | IRS payment plans and Simple Payment Plans pages |
| Failure-to-pay penalty | Normally 0.5% a month; 0.25% a month while an installment agreement is in effect, for individuals who filed the return on time | IRC 6651(h); IRS failure to pay penalty page |
| After a notice of intent to levy | The failure-to-pay rate rises to 1% a month if the tax is not paid within 10 days of the notice | IRS failure to pay penalty page |
| Future refunds | Applied to the debt until it is paid | IRS payment plans page |
A plan does not remove penalties already charged. If much of the balance is penalties, ask for relief alongside the plan; see whether IRS penalties can be removed.
What does the IRS charge to set up a plan?
Besides interest and penalties, long-term plans carry a one-time IRS setup fee, which the IRS says covers the cost of processing installment agreements. The amounts on its payment plans page today:
| Plan | Online | By phone, mail or in person | Low-income taxpayers |
|---|---|---|---|
| Short-term plan (180 days or less) | $0 (individuals only) | $0 | $0 |
| Long-term plan with direct debit | $29 | $107 | Fee waived |
| Long-term plan paid another way | $69 | $178 | $43, which may be reimbursed if conditions are met |
| Changing an existing plan | $6 | $89 | $6 online or $43 otherwise, reimbursable in some cases; no fee to change an existing direct debit plan |
The low-income rate applies to individuals whose adjusted gross income for the latest available year is at or below 250 percent of the federal poverty level. If you think you qualify but the IRS did not treat you that way, Form 13844 asks it to reconsider, within 30 days of the plan acceptance letter. Paying by card adds a processor's fee, and the IRS notes that a plan that goes into default may carry a reinstatement fee.
What protection do you get from levies?
Section 6331(k)(2) bars a levy while an installment agreement request is pending, while an agreement is in effect, and for 30 days after a rejection or termination, longer if you appeal within those 30 days. The IRS notes that the collection deadline is suspended over the same periods. If a request is rejected, or an existing plan is terminated, Publication 1660 lets you appeal through the Collection Appeals Program, and a final notice of intent to levy also opens a Collection Due Process hearing, where a payment plan can be proposed.
How do you keep a plan in good standing?
Pay at least the monthly amount on time, and file and pay every new return on time; the IRS may modify or end an agreement if you miss an installment, fail to pay another tax when due, or do not provide a financial update it asks for (section 6159(b)(4)). It must give you 30 days' written notice with an explanation before acting, except where collection is in jeopardy, and you can ask for an independent review of a termination. Individuals can use their IRS online account to reinstate a plan after a default.
When is a payment plan the wrong tool?
If you cannot pay anything right now, currently not collectible status may fit. If you can never pay the full balance, an offer in compromise may be worth reviewing, though the IRS generally will not accept one if a payment plan could pay the debt in full. A plan that is being paid on time is also one of the arrangements that keeps a large debt from being certified for passport action; see whether unpaid taxes can cost you your passport.
What changes the answer
- The size of the balance. $50,000 or less usually fits a Simple Payment Plan; more usually needs financial disclosure.
- Trust fund taxes. A business owing withheld payroll taxes has a lower $25,000 limit for the simple plan.
- Your filing history. The guaranteed agreement requires five clean years and no installment agreement for income tax in that time.
- Time left to collect. Plans must generally pay in full by the collection deadline; if they cannot, only a partial payment agreement fits.
- A levy notice. After a notice of intent to levy, the failure-to-pay rate can rise to 1 percent a month, and the notice opens a Collection Due Process hearing.
- Who owes. Individuals can apply for a short-term plan online; businesses use the phone, a notice number or a Taxpayer Assistance Center.
For example: choosing between plan types
For example, imagine an individual who filed on time and owes $38,000 in tax, penalties and interest for one year. Because the total is $50,000 or less, she can set up a Simple Payment Plan online without a collection information statement or a lien determination, as long as the plan pays the balance before the collection deadline. While the plan is in effect, her failure-to-pay penalty runs at 0.25 percent a month instead of 0.5 percent, interest keeps running, and any refunds are applied to the debt. If the same person owed $70,000, she would usually need a collection information statement, and the IRS would decide whether to file a lien. If she could not pay that amount in full before the collection deadline even under the six-year rule, a partial payment agreement would be the remaining option. This is a hypothetical, not a real case.
Common mistakes with payment plans
- Picking a payment you cannot keep. A missed installment can lead to default and collection.
- Falling behind on the current year. New balances and late returns are grounds to modify or end the plan.
- Skipping a payment when a refund is applied. The IRS says to keep making scheduled payments even if it applies your refund.
- Ignoring penalties already charged. Ask for relief separately; the plan does not remove them.
- Disclosing more than needed. Simple plans do not require a financial statement, so check whether one applies before filing Form 433-F.
What to do this week
- Get the total balance for each year from your online account or latest notice.
- File any missing returns and start paying current estimated taxes or deposits.
- Work out a monthly amount that pays the balance in the time the plan you want allows.
- Apply online if you qualify, or prepare Form 9465 and, if needed, Form 433-F.
- Set up automatic payments so a missed check does not cause a default.
Frequently asked questions
Does a payment plan stop a lien?
A Simple Payment Plan involves no lien determination. Larger plans may include one, and liens already filed stay until the balance is paid or the lien is released or withdrawn; see whether a federal tax lien can be released or withdrawn.
Can you change the payment amount or date later?
Yes. Individuals can revise the plan type, payment date and amount in their online account; if the new amount does not meet the requirements, the IRS asks for a collection information statement.
What if you receive a notice of intent to terminate?
Contact the IRS right away. The IRS generally does not take enforced collection while a plan is being considered or in effect, for 30 days after a rejection or termination, or while an appeal is evaluated.
Can a payment plan cover a trust fund recovery penalty?
Yes, once it is assessed against you personally; see the trust fund recovery penalty.
Is a payment plan possible after an audit?
Yes. Publication 3498 suggests paying what you can and requesting an installment agreement for the rest; the end of an audit is covered in what to do with an IRS 30-day letter.
Can you appeal if the IRS rejects a plan?
Yes. Publication 1660 lets you appeal a rejected, modified or terminated installment agreement through the Collection Appeals Program, usually after a conference with the collection manager and a Form 9423. The Appeals decision under that program cannot be taken to court; the route is compared with a Collection Due Process hearing in Collection Due Process or the Collection Appeals Program.
Can a private collection agency set up your plan?
Yes, for older accounts the IRS has assigned to one of its contracted agencies, which may set up plans that pay in full within seven years or by the collection expiration date. How to confirm that such an agency is real is covered in whether a private agency collecting your IRS debt is legitimate.
Choosing a plan with advice
The right plan depends on the balance, the collection deadline, and how much financial information you want to put in front of the IRS. Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and helps clients choose and set up arrangements that fit their circumstances. To discuss a payment plan, contact the firm or call (571) 560-8674.
Sources
- IRS, Payment plans; installment agreements
- IRS, Simple Payment Plans for individuals and businesses
- IRS, Topic no. 202, Tax payment options
- IRS, Collection financial standards
- IRS, Failure to pay penalty
- IRS Publication 1660, Collection Appeal Rights
- 26 U.S.C. 6159, Agreements for payment of tax liability in installments
- 26 U.S.C. 6331, Levy and distraint
- 26 U.S.C. 6651, Failure to file tax return or to pay tax