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Top 6 Ways to Arrange a Payment Plan With the IRS

Top 6 Ways to Arrange a Payment Plan With the IRS


in Guide, Tax Tips & Tricks
Top 6 Ways to Arrange a Payment Plan With the IRS

If you owe taxes but can’t pay your full tax liability in a lump sum, there are a number of IRS payment plans that you may qualify for. Entering into one of these IRS payment plans can be enormously beneficial if you’re struggling with back taxes or a larger-than-expected tax liability.

In this post, we’ll take a closer look at the top six ways to arrange a payment plan with the IRS. We’ll look at six different types of payment plans, who may qualify for each, and how you can apply to enter into these plans.

Before we begin, know that to get approved for any of these IRS payment plans, you’ll need to be up to date with your tax returns. Essentially, if you haven’t filed all your tax returns (including this past year’s tax return and any other past year’s tax return), you’ll need to do so before applying for an IRS payment plan.

1. Short-Term Payment Agreement

Debt Amount Requirements: Owe $10,000 or Less
Payment Timeline: Must Pay Within 120 Days
Fee to Apply: None
Associated Tax Form(s): Form 4868 (Application for Automatic Extension of Time to File), Online Payment Agreement Application

If you can pay your tax debt within 120 days and you owe less than $10,000, you can enter into a short-term payment agreement with the IRS. This type of payment agreement allows you to make monthly payments to pay your debt in full.

Short-term payment agreements are also called guaranteed installment agreements and they’re one of the easiest types of IRS payment plans to enter. As long as you meet the qualifications for this payment agreement and agree to the terms, you will be automatically approved.

2. Individual Installment Agreement

Debt Amount Requirements: Owe Less than $50,000
Payment Timeline: Variable, Sometimes Up to 72 Months to Pay
Fee to Apply: Variable, Between $42 and $120
Associated Tax Form(s): Online Payment Agreement Application, Form 9465 (Installment Agreement Request), Form 13844 (Application for Reduced User Fee for Installment Agreements)

An individual installment agreements (IA) is perhaps the most well-known IRS payment plan. When you enter into an installment agreement, you make an agreement to pay the IRS in full by making regular monthly payments over a set period of time.

To qualify for an installment agreement, you’ll need to owe less than $50,000 to the IRS. If you owe more than $25,000 but less than $50,000, you’ll need to provide the IRS with records of your income and expenses when you apply for an IA.

3. High Debt Installment Agreement

Debt Amount Requirements: Owe $50,000 or More
Payment Timeline: Variable
Fee to Apply: Variable, Between $42 and $120
Associated Tax Form(s): Form 9465 (Installment Agreement Request), Form 433-F (Collection Information Statement)

If you owe the IRS $50,000 or more and cannot pay within 120 days, you can’t enter into a standard installment agreement. Instead, you will have to apply for a high-debt installment agreement.

To apply for an IA when you owe $50,000 or more, you’ll need to provide the IRS with some financial information, such as records of your monthly income, your living expenses, any lines of credit and accounts, and assets you own. The IRS requires this information because they determine high-debt installment agreement approval on a case-by-case basis.

4. Small Business Agreement

Debt Amount Requirements: Owe $25,000 or Less
Payment Timeline: Typically Must Pay Within 24 Months
Fee to Apply: $52
Associated Tax Form(s): Online Payment Agreement Application, IBTF-AI (In-Business Trust Fund Express Installment Agreement)

If you own a small business and owe the IRS $25,000 or less in business taxes, you may be able to enter into a small business payment plan. For this type of payment plan, you don’t need to provide any financial records to apply. However, if you owe between $10,000 and $25,000, you’ll only be eligible to pay by Direct Debit.

5. Undue Hardship Extension

Debt Amount Requirements: None
Payment Timeline: Extension May Last 6 to 18 Months
Fee to Apply: None
Associated Tax Form(s): Form 1127 (Application for Extension of Time of Payment of Tax Due to Undue Hardship)

This payment plan is generally only for those who cannot use any of the above payment plans. If you can prove to the IRS that paying your taxes would cause you undue hardship (for example, you wouldn’t be able to pay basic living expenses or you would have to sell a property), you may be granted an Undue Hardship Extension.

All taxpayers who apply for an Undue Hardship Extension must provide financial records to the IRS. Taxpayers must provide detailed financial information, including an itemized list of income and expenses from the last three months and statements of all assets and liabilities.

6. Offer in Compromise

Debt Amount Requirements: None
Timeline Requirements: Variable
Fee to Apply: $186
Associated Tax Form(s): Form 656 (Offer in Compromise)

Our last payment plan is for those who cannot use any other payment plan on this list. An Offer in Compromise (OIC) is one of the few IRS payment plans that allows you to pay less than the full amount you owe. The IRS is strict about who is approved for an OIC. To qualify, you must prove that providing payment in full would cause you economic hardship. Additionally, you cannot be able to pay your full amount through any other IRS plan or the IRS will not approve your request for an OIC.

To apply for an OIC, you’ll have to provide the IRS with records of your monthly income and living expenses, records of your accounts and lines of credit, and records of any assets you own or liabilities you have.

Final Thoughts on IRS Payment Plans

IRS payment plans can be enormously helpful if you’re struggling with back taxes. Yet, they can be confusing. It can be hard to understand which payment plan you would be approved for and which would best help you manage your debt. If you’re dealing with back taxes and want help finding the best payment plan for you, contact Tax Defense Partners today. Our tax relief experts can help you find the best payment plan for your unique circumstances.