Got an outstanding tax bill? You might benefit from a payment plan. The IRS has short-term and long-term plans available, which can help if you can’t pay your balance in full.
There’s another benefit: “With a payment plan, the IRS usually doesn’t start a collection action.” That means you can avoid wage garnishment or tax liens on bank accounts or property.
You must be proactive. That means you’ve got to initiate the process of setting up a payment plan and make your monthly installments on time, every time.
There’s a catch. Setting up an IRS installment agreement isn’t free. I can hear you now: “There are fees to set up an IRS payment plan?“
Usually, yes. Unless you can pay your bill in full in 120 days or less, the fees are:
- $31 to apply for automatic withdrawals online
- $107 to apply for automatic withdrawals by phone, mail, or in-person
- $149 to pay with another method if you apply online
- $225 to pay with another method if you apply by phone, mail, or in-person
As you can see: Applying online and setting up automatic withdrawals is the cheapest option. There’s another benefit. If your payments are automatic, you don’t have to worry about missing a payment.
How to Set Up an IRS Payment Plan
Dealing with the IRS is stressful. Plus, payment plans aren’t the best solution for everyone.
Quick tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.
But installment agreements are pretty easy to set up. I’m going to tell you how to set up a payment plan with IRS. If you’re ready to kick your tax debt to the curb, here’s how to set up a payment plan.
Step 1: Get Up to Date on Your Tax Returns
The IRS won’t let you make payment arrangements until you’re up to date on filing your tax returns. The problem is: “How can you find all that old financial and employment info?” This first step is a big reason people hire a tax professional.
Step 2: Check Your Balance
Before you pursue a payment plan, you must know what you owe. This is another reason the IRS requires your tax returns to be up to date. Otherwise, you won’t know what your balance is or which payment plans you qualify for. Check old copies of your tax returns to see what your bill is.
What if you don’t have copies of your taxes to look at?
Contact the IRS. You can order a copy of your return online, by phone, or by mail.
Step 3: Pick a Payment Plan
When it comes to picking a plan, the IRS has a couple of options.
How can you pick?
Simple. If you owe less than $100,000 and can pay your balance off in 120 days or less, the short-term payment plan is your best bet.
Need more time to pay? A long-term payment agreement can help. It gives you up to 72 months to pay off what you owe to the IRS.
There’s one more thing. A long-term agreement is best if you owe less than $50,000. If you owe more than that, it’s harder to qualify and you may have to submit additional documentation to the IRS.
Step 4: Apply for a Plan
Now that you know what you owe and have a payment plan picked out, it’s time to apply. Visit the IRS payment plan application page. You must create an account or log in to an existing IRS account and confirm your identity.
Offer in Compromise Mistakes:
Tax relief expert (and former IRS revenue officer) Jeffrey McNeal says when he processed offers, he saw tons of mistakes made on the forms, even when prepared by CPAs and enrolled agents!
After all, you don’t want just anyone accessing your sensitive data. Here’s the info you need:
- Your name (exactly as it appears on your tax return)
- Email address
- Address from your most recent tax return
- Date of birth
- Tax filing status
- Social Security Number or ITIN
- The amount you owe
- Financial account number or mobile phone in your name
Without a bank account or a cell phone registered in your name, the process will take longer. The IRS will send an activation code to your address, and that can take five to 10 business days. It is also possible to apply by mail. You fill out IRS Form 9465 and mail it to the IRS. If applying by mail, you also need to fill out and send Form 433-F if you owe more than $50,000. Keep in mind these are government documents. If you don’t know what you’re doing and make a mistake, you could end up in serious trouble. Please, be careful.
Step 5: Manage Your Payment Plan
Once the IRS approves your payment plan, you must follow the agreement. What if you don’t? Well, it won’t be good.
If the taxpayer misses a payment, then the IRS will have the authority to revoke the entire payment plan and go after the taxpayer for the full tax debt owed.
Canopy Tax
Whatever you do…
- Don’t miss a payment.
- File all your tax returns on time from now on.
- If you move, update your address using this form.
There’s one more thing:
The IRS will keep any refund you might receive from future tax returns until your balance is paid in full.
Always prioritize tax debt over all other debts. Other debt collectors may be more aggressive, but the IRS can come after you in ways no other debt collector can.
Can You Change Your Payment Plan?
Now that you have a payment plan in place, you have a few options. As long as you keep paying on time, the IRS can give you some flexibility. For instance, what if you want to change the due date of your installment payment?
Luckily, you can. If you log in to your account, you can adjust the due date. Asking for more time to pay off the balance is an option, too. Except for one thing: “You must pay off what you owe in 72 months or less.” But as long as you don’t take longer than 72 months to pay off the balance, there’s a good chance the IRS will let you revise your payment options.
