Before you consider an installment agreement
Review the tax debt to be sure you owe it
If you believe you don’t owe the tax, now is the time to question it. If you’ve received a notice from the IRS, start by calling the number on the notice to discuss the debt.
Prepare for the agreement
Before you request an installment agreement, you should:
1) File all your required tax returns (even if you can’t pay)
- The IRS will only agree to an installment agreement if you’ve filed all your returns.
- Once you’ve entered into an agreement, you’ll have to pay all future taxes on time or your agreement may default.
2) Review your bills to figure out how much you can afford to pay per month.
Consider other resources
Can you borrow from a financial institution or a family member to pay the debt? If so, it will probably cost you less money since the IRS will charge you interest even though you’re on a payment plan. You may also avoid some penalties and associated interest, by paying the IRS sooner. Compare the costs for your situation.
Types of Installment Agreements (IA)
Guaranteed Installment Agreements
As an individual taxpayer, you have the right to an agreement without submitting a financial statement if:
- The amount of tax you owe (not counting interest and penalties) is less than $10,000.
- You (and your spouse, if you filed joint) have filed and paid all taxes due for the previous five years.
- Neither you (nor your spouse, if you filed joint) have had an installment agreement with the IRS in the previous five years.
- You can pay the full amount within three years.
- You agree to pay the liability before the period for collecting the tax expires.
- You comply with the tax laws during agreement.
Streamlined Installment Agreements
There are two types of Streamlined Installment Agreements, depending on how much and what type of tax you owe. For both types, you must pay the debt in full within 72 months (six years), and within the time limit for the IRS to collect the tax, but you won’t need to submit a financial statement.
Assessed tax liability under $25,000 (include all assessed tax, penalty and interest in computing the balance due).
This is available to individuals, businesses that are still operating, and businesses that have gone out of business.
Tax liability from $25,001 to $50,000 (include all assessed tax, penalty and interest in computing the balance due).
This is available to individuals and out-of-business sole proprietors.
Note: To get this type of agreement, you must pay through either a direct debit or payroll deduction agreement.
You can apply for a streamlined agreement online or by mail.
Partial Pay Agreement
In this situation, you have some ability to pay your taxes but can’t pay in full within the remaining time the IRS has to collect. The IRS may allow you to make payments until this collection period expires.
Contact the IRS at 800-829-1040 (TTY/TDD 800-829-4059) or the number on the notice to discuss this option. If you’re in this situation, you might also want to consider submitting an Offer in Compromise to settle your taxes instead of an installment agreement.
You can apply for a partial pay agreement online or by mail.
In-Business Trust Fund Express Agreement
An In-Business Trust Fund Express agreement may be available for businesses that owe up to $25,000. You must pay the debt in full in 24 months or before the collection period expires, whichever is earlier. You can also pay down the liability to $25,000 or less and then apply.
You can apply for this agreement online or by mail.
Routine Installment Agreements
If you don’t meet criteria for guaranteed, streamlined, or in-business trust fund express installment agreements, you can still request an installment agreement from the IRS.
You can request a routine installment agreement by mail, but not online.
Documentation: The IRS may ask you for supporting documents for your income, expenses, and other amounts you owe (example: home and car loan payments, other obligations.) The IRS publishes and uses national and local standards to determine allowable monthly expenses and arrive at the appropriate monthly payment. If you feel you should be allowed more than the standard amount, provide that reasoning with your application.
The Six Year Rule: Generally, if you only owe individual income tax, you may qualify for the Six (6) Year Rule. You’d need to provide financial information but not proof of reasonable expenses. You must stay current with all filing and payment requirements, including projected penalties and interest on the tax debt, and fully pay the installment in six years (72 months) and within the collection statute.
The One Year Rule: If you can’t pay your debt in full within six years, you may be given up to one year to modify or eliminate excessive necessary expenses. By modifying or eliminating these expenses, you may be able to pay the liability, plus accrued interest and penalties, within the six year limit.
If none of these options seems to fit your circumstances, you can call the IRS and discuss your particular situation.
The initial fee for setting up an installment agreement varies depending on the payment method you choose. These fees are subject to change and are listed on the Online Installment Agreement Page.
How to Apply
The simplest way to get an installment agreement is to use the IRS Online Payment Agreement program, if you meet the criteria. Follow the instructions to see if you qualify. The system will give you an immediate answer. If you don’t qualify for the Online Payment Agreement program, follow the directions to see what alternatives are available.
If you can’t or choose not to use the online system, you can complete the paper IRS Form 9465, Installment Agreements and submit it with all required documents to the address in the instructions.
For a routine installment agreement, you also need to submit another form:
- Individuals: IRS Form 433 F, Collection Information Statement
- Business: IRS Form 433 B, Collection Information Statement for Businesses
What if I’m rejected for an installment agreement?
The IRS does reject payment plans sometimes - if this happens to you, you have the right to appeal. You must request an appeal within 30 days by submitting IRS Form 9423, Collection Appeals Request. The IRS is prohibited from taking enforcement action while the installment agreement is pending and for 30 days after rejection or termination, which gives you time to request an appeal.