Frequently Asked Questions Regarding an IRS Installment Agreements
Can I set up an Installment Agreement with the IRS online?
Yes. If you are in compliance (have filed your tax return(s), made estimated payments for the year). If you cannot pay the tax liability in full, you can set up an Installment Agreement. You do not have to wait for a tax bill to arrive to set up a payment plan. If you owe less than $50,000, you can use the IRS's website to request an Installment Agreement. You can submit Form 9465 (Installment Agreement Request).
How many payment plans can I have with the IRS?
One. If you are on an Installment Agreement and incur a new tax debt, you will need to contact the IRS immediately. Have a new debt will in an existing Installment Agreement will cause your Installment Agreement to default. Contact the IRS right away and ask them to include the new debt under a new Installment Agreement. Note: You can only do this a couple times before the IRS will consider what you are doing as Pyramiding (incurring more and more debt) and will not accept your request for an Installment Agreement.
How does the IRS calculate the amount of the payment?
The IRS will look at your full financial situation to figure out your ability to pay. The IRS will calculate your monthly payment based on your income and allowable expenses. If the amount calculated will not pay off the debt before the collection statute expiration date, the payment may need to be adjusted.
How do I know if my payment plan has been accepted?
If you apply online, you will know immediately if your plan has been accepted.
If you apply by submitting a Form 9465 with your return. IRS will usually let you know within 30 days after they receive your request whether it is approved or denied. However, if this request is for tax due on a return you filed after March 31, it may take us longer than 30 days to reply. If they approve your request, they will send you a notice detailing the terms of your agreement and requesting a user fee.
Each month, IRS will send you a notice showing the remaining amount you owe, and the due date and amount of your next payment. But if you choose to have your payments automatically withdrawn from your checking account (also known as a direct debit), you won’t receive a notice. Your checking account statement is your record of payment. IRS will send you an annual statement showing the amount you owed at the beginning of the year, all payments made during the year, and the amount you owe at the end of the year.
Is there a grace period before the IRS terminated my Installment Agreement?
For an existing Installment payment, the IRS typically has a 30-day grace period. You can make a payment at any time during this 30 day grace period to keep your installment plan in force. After the 30-day grace period, the IRS can default and terminate your installment plan.
Can I pay off an Installment Agreement early?
Yes, there is no penalty for paying off an Installment Agreement early. As a matter of fact, if you pay within 120 days, you may be able to get the Installment Agreement setup fee refunded to you.
What are the benefits of a Direct Debit Installment Agreement?
There a a number of reason that you may want to consider the Direct Debit Installment Agreement;
1) No need to write a check each month
2) No worries about missing a payment
3) No postage every month
4) No worries about lost mail or misapplied payments
5) No credit card fees, if that is how you would have paid otherwise.
Are Installment Agreement payment deductible?
No for two reasons 1) Federal tax payments made are never deductible, and, 2) You are making payments on a past debt. Note: State tax payments are deductible.
Does a business use a separate form for an Installment Agreement?
Yes, a business used Form 433-B to obtain an Installment Agreement, where an individual used Form 433-A when working with a Revenue Office and Form 433-F when working with Automated Collections Service (ACS).
Where do I send IRS Form 2159?
TThe Form 2159 is the IRS 2159 Payroll Deduction Agreement is completed by you and your employer and serves as an agreement for your employer to make Installment Agreement payment through a payroll allotment on your behalf.
Can I request a short-term payment delay from the IRS for the current year?
If you can't pay in full immediately, you may qualify for additional time --up to 180 days-- to pay in full. There's no fee for this full payment; however, interest and any applicable penalties continue to accrue until your liability is paid in full. Individuals may be able to set up a short-term payment plan using the Online Payment Agreement (OPA) application or by calling the IRS at 800-829-1040 (individuals). See Telephone and Local Assistance for hours of availability.
How long can I take to pay my IRS debt?
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Balance of $10,000 or below
If you owe less than $10,000 to the IRS, your installment plan will generally be automatically approved as a "guaranteed" installment agreement.
Under this type of plan, as long as you pledge to pay off your balance within three years, there is no specific minimum payment required.
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For balances above $10,000, you may have to provide additional information in order to qualify.
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Balance between $10,000 and $25,000
With a balance due above $10,000, you can qualify for a streamlined installment plan.
While acceptance isn't guaranteed, the IRS doesn't usually require additional financial information to approve these plans.
With a streamlined plan, you have 72 months to pay.
A minimum payment does kick in, equal to your balance due divided by the 72-month maximum period.
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Balance between $25,000 and $50,000
Qualifying for a plan with a higher balance due requires additional information.
The IRS will want to know about your income and expenses on Form 9465-FS.
Your minimum payment will be your balance due divided by 72 months, as with balances between $10,000 and $25,000.
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Balance over $50,000
The IRS will conduct a more thorough review of your finances if you owe more than $50,000 in taxes.
On Form 433-A, you'll have to provide detailed information on your investments, assets, income and bank accounts.
If you have any meaningful assets, you might have to sell some to pay down your outstanding balance.
Your minimum payment in this situation will be unique to the specific agreement you strike with the IRS and you make have 84 months to pay
What are some methods the IRS will accept as payments?
- Direct debit from your bank account (IRS prefers)
- Payroll debits from your work paycheck (IRS prefers)
- Money orders or personal checks
- Electronic Federal Tax Payment System (EFTPS)
- Credit card payment
What is the interest rate charged on an Installment Agreement?
The failure-to-pay penalty is cut in half
The interest rate on the IRS Installment Agreement drops to 0.25%.
Interest and failure-to-pay penalties continue to accrue until the total outstanding tax balance is paid in full.
What is the fee for establishing an Installment Agreement?
The initial cost for setting up an installment agreement varies depending on the type of Installment Agreement, how you set up the agreement and which of the payment options you choose.
Proposed Fees
Installment Agreement Type Fee
Regular Installment Agreement $225
Regular Direct Debit Installment Agreement $107
Online payment agreement $149
Direct debit online payment agreement $31
Installment Agreement Types
Guaranteed Installment Agreement
If you’re able to repay your income tax debt of less than $10,000 within three years, you are eligible for a short-term payment plan. If you can repay in 120 days, you won’t be charged a setup fee.
Monthly Payment Options:
Direct Debit payments to your bank accounts.
Check or money order
Credit or debit card (payment processing fees apply)
Online or phone payments via the Electronic Federal Tax Payment System (EFTPS)
Long Term Installment Agreements
If you have a larger tax debt and require more time to repay it, you always need to set up a long-term payment plan. All debts over $25,000 require direct debit withdrawal from your monthly account.
Low-income individuals might qualify for a reduced fee of $43 by filing Form 13844, the Application for Reduced User Fee For Installment Agreements.
What are the conditions of an Installment Agreement?
The following are the conditions of an Installment Agreement:
You cannot missed two payments in a year (for most IRS payment plans, the IRS allows you to miss one a year without default)
You may not have a balance due on any future or past returns while on an Installment Agreement or have another balance owed (like from an audit or CP2000 assessment) and do not pay the balance in full (including penalties and interest)
When the IRS asks you to provide updated financial information, you must provide timely and complete information, or
You cannot fail to pay a modified payment amount that you agreed to with the IRS
What if I miss an IRS Installment Agreement payment or IRS payment plan monthly payment?
If you miss a payment, the IRS will send you Notice CP 523. This Notice will inform you of the IRS' plans to terminate your payment agreement and levy your assets. Consequently, this could cause serious financial difficulties. You have 30 days to call the IRS from the date on the letter.
Can the IRS issue a tax lien if I am in an Installment Agreement?
Yes, the IRS can issue a tax lien while you are in an Installment Agreement. A Tax Lien secures the IRS's interest against other creditors. The IRS will generally not issue a Notice of Federal Tax Lien if an individual taxpayer owes between $25k-$50k and sets up an IA paid via payroll deduction or direct debit. The IRS will typically not issue a Tax Lien if you owe less than $10,000. You should expect the IRS to issue a Notice of Federal Tax Lien if you obtain a payment plan for over $50k.
Can the IRS levy my assets if I am in an Installment Agreement?
The IRS usually does not levy your bank account, wages, or property if you are in an Installment Agreement. Understand that mistakes happen and if it does, call the IRS immediately or seek representation.
What is the deadline to appeal an Installment Agreement rejection?
Normally you have 30 days from the date of your rejection Notice to submit a new Installment Agreement request.
Why would you want to appeal a defaulted installment agreement?
If you missed a payment, accumulated a new balance, or failed to file a tax return, the IRS will consider your installment agreement as in default.
What is the deadline to appeal an Installment Agreement termination?
If your installment agreement is terminated, you have 30 days to appeal. Therefore, if you don't appeal the termination, your Installment Agreement will end on the 46th day after the letter was sent. At that point, you have 30 days to request reinstatement. There is a $50 reinstatement fee.
Will the IRS levy my assets if my Installment Agreement is rejected?
If your Installment Agreement is rejected, the IRS may levy your assets. You have 30 days to appeal the rejection. If you appeal, the IRS cannot levy your assets or garnish your wages until the appeal is either accepted or rejected.
Can I appeal an appeal?
Generally, the CAP or Collection Appeals Program is used when an installment agreement has been terminated or rejected. In fact, Form 9423, is normally used to appeal a terminated or rejected installment agreement. However, once the appeals process is over, the decision is binding. Therefore, you cannot request a judicial review of the appeal. That is why you should seek professional help during the appeals process.
Why would the IRS terminate my existing payment plan?
- You failed to file prior or subsequent returns.
- Form 433 (Collection Information Statement) was inaccurate
- Your total tax liability since you began your IA has increased
- You missed a payment
Why Would the IRS Reject My New IA Request?
- Collection Information was inaccurate or incomplete
- You previously defaulted on an IA
- You failed to file prior or current tax returns
- Your necessary living expenses on Form 433 are unreasonable
How do I change the bank account for my Installment Agreement?
Log in to your account. Select the option to revise the payment method for your existing installment agreement. You may use the OPA to change your payments from routine or mail-in payments to direct-debit payments. Select a date to have your payments debited from your bank account, and provide the routing and account numbers. These numbers are located at the bottom of your checks for the account.