As a taxpayer, it’s essential to be informed about your options when facing an unexpected tax bill. One of the concerns that often arise is the ability to pay that bill in one go. That’s where IRS monthly payment plans come into play. In this guide, we’ll walk you through everything you need to know about IRS monthly payment plans so you can make informed decisions about managing your tax debt.

Understanding IRS Payment Plans

An IRS payment plan, also known as an installment agreement, is a helpful arrangement that allows individuals to pay their federal tax debt over a specified period. There are two primary types of IRS payment plans to consider:

Short-term Payment Plan

The short-term payment plan offers taxpayers the option to pay off their tax debt in either 90 or 180 days. This can be an excellent choice if you can quickly gather the funds needed to settle your tax bill.

Long-term Payment Plan (Installment Agreement)

On the other hand, the long-term payment plan, often referred to as an installment agreement, is designed for those who require more than 180 days to clear their tax debt. This plan enables you to pay off your debt in manageable monthly installments.

Determining the Right Plan for You

Choosing between a short-term and long-term payment plan depends on your financial situation. Consider the amount you owe and how quickly you can pay it off. It’s important to note that, regardless of the plan you choose, interest and penalties will continue to accrue until your balance reaches zero.

Eligibility for IRS Payment Plans

To benefit from an IRS monthly payment plan, certain eligibility criteria must be met. Here’s what you need to know:

Short-term Payment Plan Eligibility

You can apply for a short-term payment plan if you owe less than $100,000 in combined tax, penalties, and interest. Additionally, you must have filed all your tax returns and be able to pay off your tax debt within either 90 or 180 days.

Long-term Payment Plan Eligibility

For a long-term payment plan, the criteria are as follows: you owe $50,000 or less in combined tax, penalties, and interest, have filed all your tax returns, and anticipate needing more than 180 days to pay your tax bill.

In cases where the IRS Online Payment Agreement tool deems you ineligible, alternative options like filing Form 9465 or applying by phone may still be available.

Applying for an IRS Payment Plan

Once you’ve determined your eligibility, it’s time to apply for an IRS monthly payment plan. There are several methods available for application:

Applying Online

The fastest way to apply for an IRS payment plan is online, using the IRS’ Online Payment Agreement tool. If you’ve previously registered for an online IRS account for services like obtaining a tax transcript, you can log in with the same credentials. Otherwise, you’ll need to create an ID.me account to confirm your identity, which involves providing a valid email address, photo identification, Social Security number or individual tax ID number, and access to a smartphone or webcam for verification.

Applying by Mail

Another option is to apply by mail, which involves filling out IRS Form 9465 and submitting it as directed.

Applying by Phone

If you prefer a more personal approach, you can apply for an IRS payment plan by calling the IRS’ main hotline.

Minimum Monthly Payments

When you’re on a long-term payment plan, you have some flexibility in choosing your monthly payment amount. The IRS will typically inquire about what you can afford. However, it’s crucial to select a payment amount that ensures your debt is fully paid off within 72 months.

Understanding the Fees

The cost associated with an IRS payment plan varies depending on the specific plan, application method, and whether you qualify for fee reductions. Here’s an overview of the fees you might encounter:

Short-term Payment Plan Fees

To apply online, there is no setup fee.

Payment can be made via withdrawals from your checking or savings account (Direct Pay), E-pay online or by phone, or check, money order, or debit/credit card.

Long-term Payment Plan Fees

If you choose automatic debit withdrawals for payment, there’s a $31 setup fee for applying online. Applying by phone, mail, or in person incurs a $107 setup fee.

Low-income taxpayers may have the setup fee waived.

If you opt for a different payment method (e.g., Direct Pay, EFTPS, or money order), the setup fee is $130 for applying online and $225 for applying by phone, mail, or in person.

Low-income taxpayers might pay a reduced setup fee of $43, with the possibility of reimbursement.

It’s worth noting that if you use a debit or credit card for your payments, you may be subject to processing fees, which can range from about $2 to $4 per payment for debit cards and up to 2% of the payment for credit cards.

Considering Low-income Taxpayer Options

For those classified as low-income taxpayers, the IRS provides special considerations. If you agree to allow automatic withdrawals from your bank account for payments, the IRS will waive the user fee. If you qualify as a low-income taxpayer but cannot make electronic debit payments, the IRS may reimburse you for the user fee upon payment of your balance.

To determine your eligibility as a low-income applicant, your adjusted gross income should be at or below 250% of the federal poverty level. You can check if you qualify on IRS Form 13844.

Take Action to Manage Your Tax Debt

Facing an IRS tax bill can be a daunting experience, but there are options available to help you manage your tax debt. Whether you opt for a short-term or long-term payment plan, it’s essential to address your tax obligations promptly to avoid accruing additional interest and penalties. If you’re unsure about the best course of action for your specific situation, consider seeking professional tax help.

At Tax Rise, we specialize in tax resolution and can provide you with expert guidance on managing your tax debt. Take the first step toward financial relief by scheduling a free tax consultation with us today. We’re here to help you navigate the complexities of IRS payment plans and find the best solution for your tax-related challenges. Get a Free Tax Consultation

Managing your IRS monthly payments is crucial for your financial well-being, and understanding the available options is the first step toward resolving your tax debt. Don’t let tax debt overwhelm you; take control of your finances today.