This guide will go over setting up an IRS payment plan. This is part of our Tax Help Guide, a free resource to help you navigate IRS debt.
The main recent change for IRS payment plans is that setting up a payment plan with the IRS is now simpler if your balance is under $100,000 and you can afford to pay the balance over 84 months payment plan. Also, for balances under $250,000, the IRS will accept a more spread-out payment plan. Here we will go through the different IRS payment plan types and how it relates to the amount owed.
New simplified IRS Payment Plan rules
UPDATE for the year 2021:
The IRS has changed its policy to simplify the procedure on payment plans for those with IRS debts under $250K. They will now accept any monthly payment plan that pays off the debt within the Collection Statute Expiration Date. You can still experience a lien if you owe more than $50K, and you should stay aware of the penalties and interest.
Easier payment plan steps:
- You must owe less than $250K and have all tax returns filed up to date.
- Call the IRS number listed in your most recent letter from them (or call (800) 829-7650)
- Ask to be set up on a payment plan for your preferred amount per month.
- Request the forms for this procedure, fill them in and send them back, and maintain your account balance high enough to allow withdrawals.
If you owe less than $50K, you can apply for a payment plan online. See our video guide here:
IRS Fresh Start Payment Plan
Under the new IRS Fresh Start rules, if you owe less than $50,000, your payment plan can be spread out over 84 months. A financial statement is then not required and no IRS tax liens are filed against you. If your debts are too close to the Collection Statute Expiration Date, these spread-out payment plans will not work.
For example, you owe $40,000. Your payment plan could then be $477 a month for 84 months. Due to penalties and interest, it will probably extend beyond that time period. For debts between $25,000 and $50,000, in order to be lien-free, the payment plan must be paid by direct debit from your bank.
This type of payment plan can be set up by using the IRS online system, calling (800) 829-1040 and asking for a payment plan to be set up, or by filling out IRS Form 9465 and mailing it in. The online system has the lowest setup fee ($31), but sometimes it just does not work and you have to call in. If calling, do so between 6 pm and 7 pm your local time to get the least hold time. If you call in and your balance is between $25,000 and $50,000, the IRS will ask you to fax or mail the IRS Form 433D, Make sure to send by certified mail with return receipt if mailing. If you already know you will need this form, fill it out prior to the call and have it ready to fax to the IRS agent while on the call.
IRS Payment Plan, $50,000-$100,000
New for 2017, the IRS is accepting an 84-month spread-out payment plan for debts between $50,000 and $100,000. This means you do not need to submit a financial statement to the IRS, while in 2016 anything over $50,000 requires a financial statement. However, a federal tax lien is filed in these cases against you. These payment plans also will need to be done by direct debit. To set up this type of payment plan, call the IRS at (800) 829-1040. If your case is already in collections, the most common number to call is (800) 829-7650 and you will get routed appropriately. Have an IRS Form 433D filled out and ready to go so you can fax it in to the agent. Fill in an amount to pay monthly that will pay the base tax debt off in 84 months. You can also ask the IRS to mail this form to you and you can mail it back. Send by certified mail with a return receipt if you choose this option.
IRS Payment Plan, Over $100,000
When you owe over $100,000, the IRS is going to base your payment plan on a financial statement regardless of how much you are willing to pay over a certain period. It is strongly recommended to hire a tax professional to do it for you when you owe this much, but we will go over the basics here.
The financial statement is done by filling out IRS Form 433F. If your case is assigned to an IRS Revenue Officer, then they will usually want the more in-depth financial statement, IRS Form 433A. Both of these require supporting documentation which is listed at the end of the forms. The IRS can also take a Form 433F over the phone and they may ask you to fax supporting documentation to them.
The supporting documentation the IRS usually asks for is:
- Last three months of bank statements
- Most recent pay stub if employed
- If Self Employed, a year to date profit/loss statement (although early in the year they may want last year’s)
- Proof of any court-ordered payments
- Proof of payment for state tax payments
- Proof of any out of pocket medical expenses that exceed the IRS allowance for out of pocket medical expenses
- Proof of payment for any medical insurance not shown on your paystub
- Proof of payment for life insurance
If your case is in the standard IRS collections system, you should ask IRS collections specifically where to mail your Form 433F. Send it by certified mail with a return receipt, and ask the IRS for a call backdate to make sure everything is processing if you do not receive a letter response from the IRS. The IRS’s main collections number is (800) 829-7650, and if your case happens to be in a different department you will get routed there. Your case may be assigned to the high dollar area where they are more thorough on the documentation.
If your case is assigned to an IRS Revenue Officer (usually balances over $250,000) then you will send the completed Form 433A directly to them by fax or mail. If sent by mail, send certified mail with a return receipt. If sent by fax, call and leave the Revenue Officer a voice message. State that you have faxed over the information and if they did not receive it to let you know. Sometimes the IRS can miss a fax and continue collecting on your case when you thought everything was fine and pending.
Unless you have some way to pay down the balance below $50,000, the IRS is going to file liens against you once the payment plan is in place.
Can You Have Two Installment Agreements With The IRS?
You cannot have two personal payment plans with the IRS. Owing a new debt can default your prior agreement. You can have both a business and personal payment plan, for example in a scenario where your C corporation has a tax debt it’s paying off and you also owe taxes personally.
What Should You Do First? What If I Can’t Pay?
First, see if you qualify for an Offer In Compromise. If you do, apply for it and try to get the debt wiped out for much less than you owe. Our Offer In Compromise Guide walks you through that step by step. If you do not qualify for any of the 84-month payment plans, there is a good chance you might qualify for an Offer In Compromise. The IRS can file a lien while an Offer In Compromise is pending. Usually, they don’t, but they do in some cases, especially with larger debts.
If the debt is expiring soon due to the Collection Statute Expiration Date or you have too many assets to qualify for an Offer In Compromise, Currently Not Collectible status is another option to look into.
If you make too much money for an Offer or Currently Not Collectible, than the paying in full or a payment plan are the way to go.
What Happens If You Owe A New Debt While On A Payment Plan?
If the new debt will fit within your existing monthly payment and still satisfy the IRS’ requirements, they will just add your debt to the same payment plan and keep going. You should get a heavy envelope in the mail explaining the process.
If the debt does not fit within the current payment terms (ie: Debt is under $50,000 but you will not pay it off within 72 months on a current payment plan), you need to modify the payment plan or the IRS will default your payment plan.
When the IRS Payment Plan is Over
If you end up paying the IRS off completely, by payment plan, or by paying in full, make sure to request a First Time Penalty Abatement if you qualify. Do this once you have paid off the base taxes on the first year you owe. See our First Time Penalty Abatement Guide for information on how to get it.
For IRS Payment plans that have a balance under $25,000, you should file a lien withdrawal once 3 direct debit payments have been made. If you have federal tax liens against you, once you pay your total balance below $25,000, you should set up another direct debit payment plan spread out over 84 months or less. This will get your IRS liens released. Then after three months of payments by direct debit, request an IRS lien withdrawal. It will then disappear from your credit report. See our IRS Lien Withdrawal Guide for information on IRS Lien Withdrawals.
If you think you could benefit from the help of a tax attorney, schedule a consultation with one of our expert tax attorneys here or call us at (888) 515-4829.