Facts about IRS Payment Plans
When you fall behind on your income tax payments, the IRS may let you set up a payment plan, called an installment agreement, to get you back on track. It is up to you, however, to take that first step and make a request for the installment agreement, which you can do by filing Form 9465. You can file the form with your tax return, online, or even over the phone, in some cases. But before you make the request, you'll want to gather some facts about IRS payment plans.
Key Takeaways
- You have a 10-year window from when your income tax is assessed for the IRS to collect it.
- If your tax balance is $10,000 or less, you're likely to get a guaranteed acceptance for an installment agreement if you've filed all tax returns on time in the past five years and agree to pay off the debt within three years.
- Setting up or reinstating an installment agreement comes with a user fee.
- Interest and penalties will still accrue on your unpaid tax balances even while you're on a payment plan.
10-year collection period
By law, the IRS has only 10 years from the date your income tax is assessed to collect it from you. For example, if you reported an outstanding tax bill on your 2023 tax return on April 15, 2024, in most cases the IRS has until April 15, 2034, to collect the tax from you. Therefore, the IRS will require monthly payment amounts that are large enough to pay off the entire tax bill by the end of the 10-year period. If you ignore your tax bill entirely, the IRS can secure collection of the tax you owe through wage garnishments or by placing liens on your property.
Guaranteed acceptance of your installment agreement
If your outstanding tax balance is $10,000 or less at the time you request an installment agreement, IRS acceptance of your proposed payment plan may be guaranteed if a number of requirements are met.
In order to qualify, in the prior five tax years, you must have filed all income tax returns on time, paid the income tax due, and not requested an installment agreement. Moreover, the IRS must conclude from the information you provide that you are unable to pay the tax in full. You must also agree to comply with all tax laws for the duration of the installment agreement and you must agree to pay your tax debt within three years.
TurboTax Tip:
Owing more than $50,000 means you'll need to provide the IRS with additional financial information and undergo a thorough review of your assets and liabilities to determine whether you qualify for an installment agreement.
Fee for Installment Agreement
The IRS does charge a user fee for setting up or reinstating an installment agreement.
Interest and penalties will still apply
Entering into an installment agreement can provide you with peace of mind that the IRS will not pursue any of the harshest collection methods at its disposal, but interest and penalty charges will continue to accrue on your unpaid tax balances. This is because the payment of your outstanding tax balance is still late even though you are making attempts to repay the bill through a monthly payment plan. Because of the penalty and interest charges, it's important to pay as much as possible each month; otherwise, it will take you longer to pay off the debt in full.
If you owe more than $50,000 in taxes
If the amount of tax you owe at the time you request an installment agreement exceeds $50,000, you’ll need to provide the IRS with additional information about your personal finances. In this situation, you must request the payment plan on Form 9465-FS and attach a Collection Information Statement on Form 433-F. The IRS will then perform a more thorough review of your assets and liabilities to determine whether you qualify for an installment agreement.
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