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Tax Help FAQs: IRS Payment Plans

What are the IRS Payment Plans?

IRS encourages taxpayers to pay what they owe as quickly as possible. For those individuals or businesses not able to resolve a tax debt immediately, an installment agreement can be a reasonable payment plan option. Installment agreements allow for the full payment of the IRS back tax debt in smaller, more manageable amounts.

What do you have to do to be eligible for an installment agreement?

To be eligible for an installment agreement or payment plans, all IRS returns that are due must first be filed.

What are the IRS payment plan terms?

• IRS Installment agreements or payment plans generally require equal monthly payments.
• The amount of an installment payment will be based on the amount owed and on the taxpayer's ability to pay that amount within the time legally available for the IRS to collect.
• By law, the IRS has the authority to collect outstanding federal back taxes for ten years from the date of assessment.
  
  Does the Taxpayer have to sign a waiver to extend the statute?
  
  
• For taxpayers that enter into an installment agreement or payment plan, the IRS may require a signed waiver to extend the time IRS can collect.
• Taxpayers who already have an installment agreement or payment plan from a previous amount owed may still find help.
• All of the amounts owed to the IRS could be included in one installment agreement.
• Additionally, a Collection Information Statement may have to be completed to further illustrate their financial situation.
  
  What are the conditions of an IRS installment agreement or payment plan?
  
  
• As a condition of an installment agreement or payment plan, any refund due in a future year will be applied against the amount owed.
• Therefore, taxpayers may not get all of their tax refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.
• The IRS will automatically apply the refund to the back taxes owed.
• If the tax refund does not take care of the IRS tax debt; then the installment agreement or payment plan continues until all of the terms are met.
  
  Does Interest stop with an installment agreement or payment plan?
  
  
• Interest does not stop accruing until the entire obligation is paid.
• An installment agreement is more costly than paying all the back taxes owed now.
• Penalties and interest continue to be charged on the unpaid portion of the tax debt throughout the duration of an installment agreement.
  
  Are there fees to Set-up an Installment Agreement or payment plan?
  
  
• The IRS charges a user fee of $43 to set up the installment agreement or payment plan.
• It is possible for an installment agreement to be reinstated if the agreement defaults.
• Also, installment agreements may be restructured to include additional amounts owed in one agreement.
• Reinstating or restructuring an existing installment agreement will cost an additional $24 user fee.
  
  What is an Enforced Collection Actions?
  
  Generally, IRS enforced collection actions (i.e., levy against personal or real property) are not made while an installment agreement request is being considered, or:
  
  
• While an agreement is in effect,
• For 30 days after a request for an agreement has been rejected, and
• For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.
  
  Do payments have to be made timely?
  
  
• Yes, payments must be made timely.
• Throughout the term of an installment agreement, payments must be made on time.
• If payments cannot be made due to a change in financial condition, taxpayers should contact the IRS immediately.
  
  Can my IRS installment agreement or payment plan be defaulted?
  
  
• Yes. Failure to make timely payments can default the agreement.
• A defaulted installment agreement could subject a taxpayer's account to enforced collection action and potentially have a negative effect on a taxpayer's credit standing.
  
  What is an Annual Statement of Balance Due?
  
  
• In accordance with the law, installment agreement taxpayers receive an annual statement from the IRS.
• The statement provides the amount owed at the beginning of the statement period, the payments (credits) posted to account(s), any fees or assessments, and the ending balance.
• Currently, the annual statement is sent each year in July.
  
  

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  Installment Agreements and Taxpayer Rights
  
  Prior to discussing taxpayers' ability to pay a back tax liability to the IRS, ensure they have received Publication 1: "Your Rights as a Taxpayer," and Publication 594: "What You Should Know About The IRS Collection Process."
  
  Request full payment of the tax liability. Encourage the taxpayer to pay off the IRS tax liability as quickly as possible. If the taxpayer cannot pay the liability in full, encourage them to pay within 120 days. If taxpayers are unable to pay in full, conduct interest-based interviews.
  
  Request some payment from the taxpayer. Taxpayers may be required to make a payment or payments while securing documentation to determine the proper disposition of accounts.
  
  When taxpayers are unable to pay a tax liability in full, an installment agreement or payment plan must be considered.
  
  Taxpayers with individual income tax liabilities of $10,000 or less (exclusive of penalties and interest) may be guaranteed an IA. Taxpayers with liabilities of $25,000 or less, may qualify for Streamlined Agreements.
  
  There are various methods for making monthly IRS installment agreement payments. The taxpayer must be encouraged to use one of the following electronic methods or credit card payments before accepting payment by check or money order:
  
  
• Electronic Federal Tax Payment System (EFTPS) Taxpayers will select the "payment-due with IRS notice" payment type for posting to masterfile with a TC 670. EFTPS has the ability to schedule payments up to 12 months in advance for individual taxpayers and up to 4 months in advance for business taxpayers. The taxpayer must initiate payments by sending instructions to EFTPS.
  
  
• Direct Debit installment agreements (if taxpayer maintains a checking account you must encourage them to take advantage of the direct debit installment agreement.
  
  
• Payroll deduction installment agreements (If the taxpayer will not agree to a direct debit installment agreement, you must encourage them to take advantage of the payroll deduction agreement.)
  
  
• Credit Card installment agreement payment.
  
  
• Payment by check or money order. If payments are made by check, they should be written to: US Treasury. However, checks made out to "Internal Revenue Service" or "IRS" will be processed.