Ideally, taxes should be paid in full when they’re due, but that’s not always possible. When immediate payment isn’t an option, setting up an IRS installment agreement, also known as a payment plan, can be a practical solution. This agreement allows taxpayers to pay off their tax debt over time in manageable monthly payments based on their current financial situation.
The IRS offers different types of agreements depending on the amount you owe and your ability to pay. These include: streamlined and non-streamlined installment agreements, short-term and long-term payment plans, and guaranteed installment agreements. Each option comes with specific eligibility requirements, and choosing the right one is key to staying compliant, as defaulting on your plan may result in severe financial consequences.
The expert guidance of a tax attorney is invaluable when it comes to choosing a suitable payment plan. Victory Tax Lawyers has the best team of attorneys when it comes to guiding clients in navigating the demands of the IRS. We don’t just help you set up a plan, we help you stay compliant. Book a free consultation with one of our installment agreement lawyers today.
In this post, we’ll cover what an IRS installment agreement is, how it works, and its different types. If you’re also wondering what happens if a taxpayer defaults on their agreement, we cover that too.
How Does an IRS Installment Agreement Work?
An IRS installment agreement (payment plan) is a tax relief option available to taxpayers who are unable to pay their tax balance in full as of the due date. This arrangement allows you to spread your payments over time, typically in monthly installments, instead of making a single lump-sum payment.
For instance, if you owe $20,000 in back taxes, the IRS may approve a plan that allows you to pay $1,000 per month for 20 months. Once you request a payment plan, the IRS is generally required to suspend its time to collect and pause all collection actions until your request is either approved or withdrawn. However, interest and late-payment penalties will continue to accrue on the unresolved balance until the full amount is paid.
Like other IRS Forgiveness programs, there are eligibility requirements you must meet to qualify for an installment arrangement. Chief among them is that you must have filed all required tax returns and made any necessary estimated tax payments. The IRS generally won’t consider approving your request for an installment agreement or any other tax relief arrangement if you don’t have a history of compliance.
If the IRS approves your payment plan, one of the things you must make sure of going forward is ensuring all future tax payments are paid on time. If you default on your tax payments, the IRS can terminate the installment agreement, bringing you back to where you started, or worse, they may resort to enforcement actions such as liens or levies. If your request is denied or terminated and you feel you have a valid case, you can make an appeal to the IRS. The collection period is suspended as well from the time the appeal is pending until the appealed decision becomes final.
A payment plan is most effective when you have a steady income and are confident that, with more time, you can pay your tax debt in full. That’s why it’s important to choose a plan that aligns with your current financial situation and allows you to make consistent, on-time payments. Otherwise, you may want to consider other tax relief options.
Types of IRS Installment Agreements
The IRS offers several payment plan options to help taxpayers find an option that best fits their unique financial circumstances. We’ve listed out the different types of IRS installment agreements below:
Short-Term Payment Plan
A short-term payment plan is ideal for taxpayers who can pay off their debt within 180 days, i.e, six months or less. This option is available if your total balance, including tax, penalties, and interest, is under $100,000. If you have savings or can access a short-term loan, this option may help you avoid additional interest and penalties that accrue under longer-term arrangements.
You can apply for a short-term plan online at no cost. Alternatively, you may contact the IRS directly through their hotline, via mail, or visit their office in person. You should expect to receive a notice of approval or denial from the IRS within about three weeks of applying.
Long-Term Payment Plan (Standard Installment Agreement)
A long-term or standard installment agreement allows taxpayers to pay their tax debt in monthly installments for up to 72 months (six years). It’s a good choice for individual taxpayers who cannot pay their tax debt in full within six months (180 days). To qualify, you must owe $50,000 or less in combined tax, penalties, and interest; have filed all your tax returns; and need more than six months to pay your tax bill.
Businesses may also qualify for a long-term payment plan if they have filed all their required tax returns and are owing $25,000 or less in combined tax, penalties, and interest. As with the short-term payment plan, you can also apply for a long-term payment plan online, by phone, by mail, or in person.
Partial Payment Installment Agreement (PPIA)
This particular plan is designed for individual taxpayers experiencing severe financial hardship and are unable to pay their tax debt in full before the expiration of the IRS’s 10-year collection period. With a PPIA, taxpayers are allowed to make monthly payments based on what they can afford, not the total balance, and any remaining debt may be forgiven after the statute of limitations runs out.
To qualify, you must not have had another installment agreement in the last five years; you must be ready to submit a financial statement detailing your income, expenses, and assets to enable the IRS to verify your hardship claim. Finally, you must be willing to potentially liquidate your valuable assets to reduce your tax debt before initiating a monthly payment.
The monthly payment amount will depend on your financial ability. The IRS will review this amount, usually every two years, and may increase the monthly payments if your financial situation is seen to have improved.
Guaranteed Installment Agreement
The guaranteed installment agreement plan is available to taxpayers owing the IRS $10,000 or less (excluding interest and penalties). Unlike the other plans mentioned, this one requires the least amount of paperwork and typically offers a straightforward approval process.
To qualify for a guaranteed installment agreement, the taxpayer must:
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Owe less than $10,000 (excluding interest and penalties)
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Be unable to pay the tax liability when due or within 120 days
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Have filed tax returns, paid taxes owed, and not entered into another installment agreement in the previous five years
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Be able to pay off the tax liability within three years
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Pay at least the minimum monthly payment (tax liability, interest, and penalties divided by 30)
Streamlined Installment Agreement
Individual taxpayers or businesses who want to avoid detailed financial disclosures may apply for a streamlined installment agreement. The application process is often fast and straightforward.
Like the long-term payment plan, your total tax debt (tax, penalties, and interest) must be $50,000 or less for individuals and $25,000 or less for businesses. You must agree to pay off your full tax debt within 72 months (6 years), and your proposed monthly payment must be at least the total debt divided by 50.
Who Qualifies for an IRS Installment Agreement?
To be eligible for an IRS installment agreement, you must meet specific requirements based on the type of plan you’re applying for. The most important condition is that all your past tax returns must be filed before the IRS will consider your request.
Here are the general eligibility criteria:
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You owe less than $50,000 (or $100,000 for short-term plans) in assessed taxes, penalties, and interest
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Be up-to-date on filing your tax returns. The IRS will not even process your application if you have unfiled returns
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You must not have had an existing installment agreement in the last five years
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You must be able to make the required payments
How to Apply for an IRS Installment Agreement
Requesting an installment agreement is not a guaranteed assurance that your request will be approved. There are basic eligibility requirements you must meet before the IRS will even consider your request. Beyond that, you need to take the right steps at each stage of the application process to improve your chances of approval. Follow these key steps to apply for an IRS installment agreement:
1. Consult a Tax Attorney
It may seem like a no-brainer, but consulting a tax attorney should always be your first step when dealing with the IRS. Trying to handle a payment plan on your own can be risky. You could end up agreeing to terms that are too aggressive for your financial situation, or worse, miss out on better options entirely.
A tax attorney can help you avoid those mistakes by:
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Reviewing your full financial picture and determining what you can realistically afford each month
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Recommending the best installment agreement based on how much you owe, your income, and how long you’ll need to pay it off
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Negotiating better terms with the IRS, including lower monthly payments or even alternative solutions like an Offer in Compromise
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Filing the paperwork correctly to avoid delays, denials, or unnecessary penalties
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Helping you appeal if the IRS rejects your request or sends back unfavorable terms
You do not want to risk guessing your way through. Luckily, most tax attorneys offer a free consultation, so there’s no reason not to get expert advice upfront. You can schedule a call with a tax professional today at no cost.
2. Choose the Right Installment Agreement
Choosing the right installment agreement sets the foundation for successfully settling your tax debt and avoiding further tax complications. The first step to getting things right is to assess your current financial standing to determine the plan you can realistically stick to. Whether it’s a short-term plan, a long-term plan, a PPIA, or a guaranteed/streamlined agreement, your choice should align with your ability to keep up with payments and avoid default.
3. Choose Your Preferred Application Method
Once you’ve taken the time to determine the best installment agreement for your situation, it’s time to apply. You can apply using one of these methods:
1. Online
The easiest way to apply for a payment plan is through the IRS Online Payment Agreement tool on the IRS official website. You may qualify for a long-term payment plan if you owe $50,000 or less in combined tax, penalties, and interest, and have filed all required tax returns. If you are applying for a short-term payment plan, your total debt must be under $100,000 in combined tax, penalties, and interest.
If you already have an IRS account, simply log in using your existing user ID and password. If not, you’ll need to create a new account to verify your identity. If you don’t meet the criteria for applying online, you could use alternative methods.
2. By Phone
If you prefer to speak with someone directly, you can apply by calling the IRS. For individual taxpayers, dial 800-829-1040. If you’re applying as a business, call 800-829-4933. You can also use the phone number listed on your IRS notice.
Before calling, make sure you have all relevant information on hand, including your Social Security Number (SSN), tax return details, and your proposed payment plan. This will help ensure your application is processed smoothly.
3. By Mail
To apply by mail, fill out Form 9465 (Installment Agreement Request) and submit it alongside all the necessary documents. If you’re applying as an individual taxpayer and owe over $50,000, you’ll also need to include Form 433-F (Collection Information Statement). For businesses requesting a payment plan, submit Form 433-B, which is the Collection Information Statement for Businesses.
Mail your completed forms to the appropriate IRS address listed in the instructions. If you’re submitting Form 9465 with your tax return, attach it to the front of the return. If you’re filing it separately, send it to the IRS address designated for your state of residence. Be sure to fill out all forms completely and accurately to avoid delays whatsoever in processing.
4. Set Up Your Payment Method
Once your payment plan is in motion, you’ll need to choose how you’ll make your monthly payments. The IRS offers several payment options, including direct debit, payroll deduction, and money order. Each has its own benefits and drawbacks.
Direct debit, also known as a Direct Debit Installment Agreement, is the most recommended method. With a direct debit agreement, the IRS automatically withdraws your monthly payment from your bank account at no cost. Since you don’t need to manually authorize each payment, the risk of defaulting on your payments when using a direct debit agreement is significantly lowered.
Payroll Deduction is another automatic option. Your monthly payment is deducted directly from your paycheck. It’s another option that can help you stay consistent and ensure you don’t fall behind on payments.
If you prefer not to use automated methods, you can also mail a check or money order each month, accompanied by Form 1040-V (Payment Voucher), to the appropriate IRS address listed in your filing instructions. Make the payment payable to the United States Treasury, and include the following details:
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Your full name and address
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Daytime phone number
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Tax identification number (usually your Social Security Number)
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Yax year, and
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Relevant form or notice number (for example, 2024 Form 1040)
Bear in mind that mailing your payments carries a higher risk of delays or missed deadlines, which could lead to penalties or the termination of your agreement.
5. Wait for IRS Approval
Your payment plan request will either be approved, withdrawn, or rejected by the IRS, depending on your eligibility and the completeness of your submission. Whatever the outcome, the IRS will usually inform you within 30 days of receiving your application.
If your request is approved, the IRS will send you a notice detailing the terms of your agreement, including the amount, due dates, and payment method. You’ll also be asked to pay a user fee, which may vary depending on how you applied and the payment method you selected.
If your request is denied, don’t panic. You aren’t out of options yet. You can choose to appeal their decision or renegotiate the terms of your request. This part of the process can be tricky, so having a tax professional in your corner can make a big difference.
How Much Does an IRS Installment Agreement Cost?
As we mentioned earlier, the cost of an installment agreement isn’t really fixed. It depends largely on the type of plan you choose, how you apply for it, and the payment method you prefer.
Short-term Payment Plan
If you can afford to pay off your tax balance within 180 days, it won’t cost you anything to set up a short-term installment plan. Regardless of how you apply, whether online using the online payment agreement tool, by phone, mail, or in person, you won’t be subject to any setup fee.
After applying, you can make payments:
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Through Direct Pay from your checking or savings account
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From your IRS online account
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By phone using the Electronic Federal Tax Payment System (EFTPS)
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Using a check, money order, or debit/credit card. Note that fees apply when paying by card.
Bear in mind that only individual taxpayers can apply for a short-term payment plan online.
Long-term Payment Plan Installment Agreement
If you need more than 180 days to pay off your debt, a long-term installment agreement may be a better fit. Costs vary based on your payment method and how you apply:
Option 1: Direct Debit (Automatic Monthly Withdrawals): You can choose to pay through automatic monthly withdrawals from your checking account using the Direct Debit Installment Agreement option.
The setup fee for this is $22 if you apply online and $107 if you apply by phone, mail, or in person. Low-income applicants (i.e, taxpayers earning at or below 250% of the federal poverty level) are eligible to have the setup fee waived, regardless of how they apply.
Option 2: Other Monthly Payment Methods
Alternatively, you can also make your monthly payments through Direct Pay, EFTPS, check, money order, or debit/credit card if you’d rather not have the payment automatically deducted.
When using this option, it costs $69 when applying online and $178 when applying by phone, mail, or in person. Low-income applicants pay a reduced fee of $43, which may be reimbursed if certain conditions are met. As with the short-term plan, additional processing fees apply when paying by card.
Ultimately, it’s more affordable for taxpayers to apply online and choose the direct debit option. This method comes with the lowest setup fees and helps ensure you don’t miss a payment.
What Happens if You Default on Your Installment Agreement?
Three main actions can trigger a default under an existing IRS installment agreement:
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Failing to file a tax return on time
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Missing one or more installment payments
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Incurring a new tax debt or penalty while your current plan is active
If you default, the IRS will begin the process of terminating your agreement. Before doing so, they’ll send you a Notice of Intent to Terminate Installment Agreement. If you don’t respond within three months, the agreement will be terminated, and the entire tax balance will become due immediately. In some cases, you may be able to request an appeal to renegotiate a new installment agreement.
Defaulting comes with serious consequences, which is why it’s important to choose a plan you can realistically stick to. Typically, the IRS will follow up with a Notice of Intent to Levy if the issue isn’t resolved. This notice simply means the IRS plans to take collection actions, which may include garnishing your wages, seizing your assets, freezing your bank or investment accounts or putting a lien on your property.
If you’ve received any of these notices, the most important thing to do is to get back to the IRS as quickly as possible. Ignoring the notice will only make things worse. If you’re able to set up a new plan, be sure to make your payments consistently. Defaulting over and over again not only triggers additional penalties and interest, but it can also disqualify you from entering into future installment agreements.
Alternatives to an IRS Installment Agreement
If an IRS installment agreement isn’t right for you, or you don’t qualify, there are other IRS hardship options worth considering. These alternatives each come with their own eligibility requirements and potential drawbacks, so be sure to consult with your tax attorney before deciding which one is best for your situation.
Offer in Compromise
An Offer in Compromise allows you to settle your tax debt for less than the full amount you owe. The IRS will evaluate your offer based on factors such as your income, expenses, assets, and overall ability to pay. While this is a popular tax relief option, due to the strict eligibility and evaluation criteria, very few taxpayers ultimately receive approval. This is why it’s advisable to work with a tax attorney when preparing and presenting your application.
Currently Not Collectible (CNC) Status
If you’re facing severe financial hardship, you may qualify for “Currently Not Collectible” (CNC) status. This designation temporarily halts IRS collection actions and allows you to defer payments until your financial situation improves.
The CNC is not a long-lasting fix because, while collection actions may be paused, interest and penalties will continue to accrue on your unpaid tax balance. Moreover, the non-collectible status only lasts for a period of 6 to 12 months. The IRS will regularly review your financial situation to determine whether you’re able to resume payments or if further relief is needed.
Take Out a Personal Loan or Home Equity
If you’re unable to pay your tax debt upfront, borrowing through a personal loan or using home equity may be a practical alternative. Some loans can be approved and disbursed the same day. If you’re going to take this route, though, make sure you’re aware of the tradeoffs.
Most personal loans carry high annual percentage rates (APRs), with some lenders charging as much as 36%. The good thing is you can always shop around, as different lenders provide different rates and terms depending on your credit score, income, and overall financial profile. Before committing, compare the total interests and fees against what you would pay through an IRS installment plan to know whether to go ahead or not. In some cases, borrowing may cost you more in the long run, even if it seems like a quicker solution upfront.
Need an IRS Installment Plan Lawyer in Los Angeles?
If you owe the IRS, there are practical steps you can take today to make repaying your tax debt more manageable. One of the most effective and widely used options is an IRS installment agreement. With several plans available, choosing the right one can significantly affect how quickly and affordably you resolve your balance. If you’re unsure which option best fits your financial situation, or if the application process feels overwhelming, getting expert help is a smart move.
If you need an IRS Installment Plan Lawyer in Los Angeles to help you choose the right plan or support you through the application process, Victory Tax Lawyers is here for you. We specialize in guiding taxpayers through IRS payment plans, ensuring you get the best solution for your specific financial situation. Not only do you get access to experienced tax attorneys, but we also offer a free consultation, giving you a chance to speak with a tax expert at no cost and understand the value we bring. Contact us today to get started.
FAQs
Can You Negotiate the Terms of an Installment Agreement?
Yes, you can negotiate the terms of an installment agreement. However, it’s best to let a tax attorney professionally handle the negotiation to increase your odds of success.
What Happens if You Miss a Payment?
If you miss a payment, the IRS will send you a notice informing you of the missed installment. It’s important to respond to this notice as soon as possible. If you fail to respond or take action within three months, the IRS may terminate your installment agreement altogether.
Can an Installment Agreement Be Modified or Canceled?
Yes, the IRS allows you to modify and even cancel your payment plan. Using the online payment agreement tool, you can view details of your current payment plan and make other revisions as required. These include adjusting your monthly payment amount, changing your monthly due date, converting your plan to a Direct Debit agreement, updating your bank routing or account number for direct debit, and reinstating the agreement after a default.
