Hello, I’m Tammy from TurboTax with some information about paying your income taxes in monthly installments.
There is no reason to panic if you still owe tax with your return or receive a notice from the IRS to collect past-due taxes. If you can’t afford to make a lump-sum payment, you may be interested to know that the IRS does allow some taxpayers to pay off their debt on a monthly basis. These payment plans are known as installment agreements.
If you owe $25,000 or less— including interest and penalties that have accrued—you have the option of requesting the payment plan on the IRS website or by preparing a Form 9465 and mailing it to the IRS.
However, if you owe more than $25,000 you will need to contact the IRS or prepare and submit Form 9465. At the outset, you should realize that if your payment plan is accepted, you must agree to finish paying your taxes within five years. Also, during your repayment period, the IRS will keep any tax refunds you’ve accrued to offset the balance you owe.
If you owe $10,000 or less, you may qualify for guaranteed acceptance of your payment plan request. To qualify, you must agree to repay your debt in full within three years rather than five. You also must have filed all tax returns and paid your tax bills on time for the last five years and continue to do so for the duration of your installment agreement.
Regardless of the amount you owe, you need to estimate the payment you can afford to make each month—but keep in mind it must be large enough to pay off your taxes within the three or five-year period.
When you decide that an installment agreement is appropriate, always remember that it doesn’t stop the accrual of interest and penalties that apply for paying your taxes late. However, an installment agreement does prevent the IRS from using harsh collection procedures, such as freezing the funds in your bank account or placing a lien on your property.