Does the IRS Offer Payment Plans?
One of the most commonly asked questions asked of our Support Team during tax extension season is if there are any options to pay the IRS in installments. The answer is: YES.
If you cannot pay the full amount due with your income tax return, you can ask the IRS if they will allow you to make monthly installment payments for the full amount or a partial amount. However, keep in mind that you will be charged interest and also possibly a late payment penalty on the tax not paid by the date your return is due, even if your request to pay in installments is granted.
If your payment plan request is granted by the IRS, you must also pay a fee. To limit your interest and penalty charges, try to pay as much of the tax as possible with your tax return. But before requesting an installment agreement, you may want to consider other less costly alternatives, such as a bank loan.
To ask for an installment agreement, use Tax Form 9465,
known as the Installment Agreement Request. You should receive a response to
your request within 30 days. You can also apply online for a payment agreement.
To do that, go to the IRS website and use the pull-down menu under “I need to .
. .” and select “Set Up a Payment Plan.”
How an Installment Agreement Works
You will also be charged interest and possibly a late payment penalty on any tax not paid by its original due date, even if your request to pay in installments is granted. Interest and any applicable penalties will be charged until your balance is paid in full. To limit the interest and penalty charges, you will want to file your tax return on time and pay as much of the tax as possible with your return (or notice). All payments received will be applied to your account.
By approving your request, the IRS agrees to let you pay the tax you owe in monthly installments (instead of immediately paying the amount in full). In return, you are agreeing to make your monthly payments on time. You are also agreeing to meet all your future tax liabilities. This means that you must have enough withholding or estimated tax payments so that your income tax liability for future years is paid in-full when you timely file your return. Your request for an installment agreement will be denied if all required tax returns have not been filed. Any tax refund due you in a future year will be applied against the amount you owe. If your tax refund is applied to your balance, you are still required to make your regular monthly installment payment.
Payment Methods
You can make your payments by check, money order, credit
card, or with a different payment method. After The IRS receives each payment,
they will send you a notice showing the remaining amount that you owe, and the
due date and amount of your next payment. However, if you choose to have your
payments automatically withdrawn from your bank account, you will not receive
these notices in the mail.
Keep in mind, your bank statement is your record of payment. The IRS will also
send you an annual statement showing the amount you owed at the beginning of
the year, all payments made during the year, and the amount you owe at the end
of the year. If you do not make your payments on time, or you do not pay any
balance due on a return you file later, you will be considered “in default” on
your installment agreement and the IRS may take action against you ― such as
filing of a “Notice of Federal Tax Lien” or an IRS levy action ― to collect the
entire amount you owe. To ensure that your payments are made in a timely manner,
you should consider making them by electronic funds withdrawal.
