What can you do if you owe the IRS more money than you can pay at once? There can be nothing more daunting than a large tax bill hanging over your head, but never fear—there is a solution to make your tax debt more manageable. When you set up a payment plan with the IRS, you can make smaller monthly payments and pay off your balance over time, instead of all at once.
The IRS offers several different types of installment plans and agreements, including short-term payment plans, guaranteed installment agreements, long-term installment agreements, and partial-pay installment agreements. One of the most convenient methods to pay off a tax bill is through an IRS direct debit installment agreement
Read on to learn more about using installment agreements to settle your tax debt, the benefits of a direct debit installment agreement, and how to set up an installment agreement with the IRS.
Types of IRS Installment Plans and Agreements
Everybody’s tax situation is different, so the IRS maintains a wide variety of installment plans to help taxpayers in debt lessen the burdens of their back taxes. To be eligible for these plans, you must be current on all tax filings and not in bankruptcy. Which option is right for you depends on how much debt you have and how long you need to repay it.
Short-Term Payment Plan
If you can’t pay your tax bill now but only need a little more time, a short-term payment plan gives you up to 180 days to pay your balance. You’re eligible for this payment plan if you owe less than $100,000 in taxes, penalties, and interest. Unlike other IRS installment plans, there is no setup fee.
Guaranteed Installment Agreement
If you owe $10,000 or less and need more than 180 days to pay your bill, you might qualify for a guaranteed installment agreement that gives you three years to pay off your debt. To qualify, you must have paid your taxes on time for the past five years.
Long-Term Installment Agreement
For larger tax balances, a long-term installment agreement offers up to 6 years (and, depending on circumstances, possibly more) to pay off your balance.
How much does the IRS charge to set up a payment plan?
For a long-term installment agreement, you must pay a setup fee. The fee varies based on whether you apply online, by mail, or by phone and whether you pay by check, credit, or direct debit.
Paying through direct debit and applying by mail or phone lowers the setup fee to $31, whereas applying online or paying by check or credit raises the setup fee to up to $225.
Partial-Pay Installment Agreement
If your debt is overwhelming and you cannot pay the full amount even with the help of tax payment plans with the IRS, a partial-pay installment agreement may be right for you.
This type of payment plan allows you to pay a portion of your tax debt over time in exchange for the rest being forgiven. The application process is lengthier and more involved than other types of IRS installment agreements. It involves an investigation and negotiations with the IRS to determine how much of your tax liability you are able to realistically pay in light of your financial situation.
How to Pay Your Installment Agreements
For all types of tax payment plans with the IRS, there are several payment options. You can pay by check, by credit card, or by direct debit.
Direct debit is often the best option for paying your tax balance. Paying via check takes conscious time and effort. You can easily miss a payment and end up defaulting on your payment plan. As for monthly credit card payments, they include transaction fees that can add up over time to a significant amount of money you didn’t need to pay.
Can you set up a payment plan with the IRS online?
There are three ways to set up tax payment plans with the IRS—by mail, through telephone, and online. While applying online is possible and convenient, it is not always the best method to set up an installment plan. For example, if you’re setting up a long-term installment agreement, applying online instead of by mail or over the phone increases the setup fee.
What is a direct debit installment agreement?
An IRS direct debit installment agreement takes the funds required for your monthly installment payment directly from your bank account’s balance. Unlike other payment options, direct debit doesn’t require monthly postage, doesn’t risk lost or misplaced payments, and has no transaction fees associated with it.
In addition, if you’re applying to an installment agreement with a setup fee, choosing direct debit as your payment method upfront can reduce that fee. For example, choosing direct debit when applying for a long-term installment agreement by mail or telephone reduces your setup fee to $31, whereas choosing a different payment method can raise the fee to up to $225 depending on how you apply.
Are there any negatives to an IRS direct debit installment agreement?
While direct debit is overall an improvement over paying by check or by credit, it is not without its own downsides. One risk associated with direct debit is overdraft.
If you don’t keep enough funds in your bank account to cover the monthly installment payment, your bank could charge an overdraft fee and the IRS could charge an insufficient funds fee. If you miss more than two months of payments due to insufficient funds, you may default on your installment agreement.
Another risk is the IRS makes it difficult to stop a direct debit installment agreement. If you want to end the agreement for whatever reason, they are generally reluctant to do so.
How to Set Up an IRS Payment Plan
For most installment agreements, you can apply online or by completing and mailing Form 9465 to the IRS. For a partial-pay installment agreement, you also need to fill out Form 433-A Collection Information Statement and present information on your finances and equity. There are other forms you may need as well—you can learn more about these forms and why you might need them here.
When applying, you will need to provide the IRS with basic taxpayer information:
- Address and email address
- Date of birth
- Filing status
- Social Security number
- Balance due
To request a direct debit installment agreement, you will also need to provide your bank routing number and your account number so the IRS can set up automatic monthly withdrawals.
When you need to set up a payment plan with the IRS, choosing the right option for an installment agreement and navigating the application process isn’t always easy. You should always consult with a tax professional first before making any major decisions.
Experienced tax attorneys like our experts at Wiggam Law can help you choose the right installment plan to suit your unique tax situation, navigate the application process, and negotiate with the IRS if necessary so you can get the best possible resolution to your tax dilemma.
We’re here to help take on the burden of tax debt and work out the best resolution possible so you can focus on taking care of what matters most to you. To get started on your IRS direct debit installment agreement, give us a call today at (404) 233-9800 or schedule a consultation online.