IRS Payment Plans (Installment Agreements)

What Is an IRS Payment Plan?

An IRS payment plan or Installment Agreement is an agreement between a Taxpayer and the IRS to pay a back tax liability.

How Do I Qualify for an IRS Payment Plan?

To qualify for an IRS payment plan you must be current and compliant with all tax filings and payments. This includes making current Federal Tax Deposits as a business and estimated tax payments (or sufficient withholding) as an individual.

Requirements for an IRS Payment Plan

To approve most IRS payment plans, the IRS will require full financial disclosure either on a 433-A, 433-B or a 433-F Collection Information Statement. The financial statement will require you to disclose all of your assets, income, and expenses. The purpose is to determine first whether you have any assets you can sell to pay the debt quickly, and if not, how much you can afford to pay each month. Properly completing this form is crucial to negotiating a payment plan within your budget.

Types of IRS Payment Plans

The IRS has many Payment Plan programs available which will give you from four months to ten years to pay the back taxes.

In Business Trust Fund Installment Agreements: Trust fund tax liabilities arise from the failure to collect and/or deposit IRS employment taxes. These are the most difficult IRS payment plans to negotiate. Collecting delinquent employment taxes is top priority at IRS collections. Through the Trust Fund Recovery Penalty you can be held personally responsible for the back employment taxes of your business.

Guaranteed IRS Payment Plan: If you owe the IRS $10,000 or less of income tax, you are "guaranteed" an IRS payment plan over three years.

Streamlined IRS Payment Plan: If you owe $25,000 or less in non-trust fund taxes, you qualify for a five-year IRS payment plan.

Standard IRS Payment Plan: Full financial disclosure is required and if the IRS determines you can pay the back tax debt faster by liquidating assets or borrowing the money, they will most likely deny your request. Otherwise a payment plan is established based on what they believe you can afford to pay.

IRS Partial Payment Installment Agreement: The IRS allows taxpayers who cannot pay their back tax liability in full within five years to qualify for an IRS payment plan. Under a partial payment installment agreement, you make monthly payments until you either pay it off or the statute of limitations expires. Any debt remaining after the statute expires is forgiven.

Difficulties in Setting Up an IRS Payment Plan

The difficulty in obtaining an IRS payment plan depends on the amount of back tax owed and the amount you can afford to pay. The more divergent these are, the more difficult it will be. The IRS is going to want confirmation that you can pay the back taxes along with assets and sources of income on file in case you don't. The IRS has broad and extremely effective methods of collecting back taxes, so setting up the right IRS Payment Plan is key.

Do I Need Professional Help?

Maybe — the main issue is getting an IRS payment plan that is within your budget. IRS payment plans are set by determining your monthly disposable income. Knowing which expenses are allowed and how much is allowed is key to getting a payment plan you need.

Often the IRS will force you into a payment plan you cannot afford, which leads to the accrual of a new tax liability. This is the worst thing that can happen. A new tax accrual will default the Payment Plan and lead to another rash of penalties as well as increased IRS collection efforts.

Options for Paying

IRS Payment Plans can be paid via electronic funds transfer, EFTPS, by phone with check or credit card, direct payroll withdrawal, or by mailing in payments.