In a perfect world, everyone could pay their taxes in full and on time. Oh, who are we kidding? In a perfect world, there would be no taxes!
Unfortunately, the world isn't perfect, and sometimes good people owe more taxes than they can pay. Most taxpayers are honest people who find themselves in a hole due to unforeseen circumstances.
That doesn't make it any easier to deal with the IRS. When you pay your taxes on time, you avoid interest and penalties, future refunds paying your tax bill, and problems obtaining loans. Any time you fail to file a tax return or fail to pay, the IRS adds a penalty and starts charging interest.
If you need a payment plan, is the IRS required to give you one? You can get one in most cases if you follow the rules. Read more below.
Payment Plans: An Overview
The IRS provides payment or installment plans so you can pay your taxes within an extended time frame. However, you have to request one. The agency won’t set one up for you automatically. As long as you make your payments on time, the IRS won’t garnish your wages or seize your property.
The IRS offers short-term and long-term payment plans according to how much you owe and how much you think you can pay each month. Penalties and interest continue to accrue until the balance is completely paid.
A long-term payment plan allows you to pay your taxes over 72 months (six years), but only if you owe $50,000 or less in combined taxes, interest, and penalties. Also, you have to have filed all your taxes for previous years.
A short-term payment plan is available if you owe less than $100,000 in combined tax, penalties, and interest.
If you are a low-income taxpayer, the IRS waives user fees if you agree to automatic withdrawals from your bank account. If you can’t make electronic payments, the agency will reimburse you when you pay off your tax balance.
What Happens When You Request a Payment Plan?
Once the IRS grants you an installment plan, it can no longer place levies or attempt to collect in other ways. The time for them to collect is also suspended while you have an installment plan. In fact, the IRS's efforts to collect must stop when you apply for the plan.
You choose how much to pay each month, but the IRS expects you to pay as much as possible without compromising your ability to pay your bills. However, it does not care if you can pay for coffee or other “luxuries.” They expect a little sacrifice.
Your request is pending until it’s reviewed and established unless you withdraw it or the IRS rejects it. Rejection still causes the IRS to suspend their collection time for 30 days, so there’s that.
If you default on your payment plan (in other words, you don’t pay), the IRS can propose to terminate your installment agreement and begin collections in a month.
Fees and Terms
If you are eligible for a short-term payment plan, you have up to 180 days to pay your taxes, interest, and penalties in full. You must owe less than $100,000 to qualify for a short-term plan, which is free if you apply online or by phone, mail, or in person.
The IRS accepts automatic withdrawals from your checking or savings account, which they call Direct Pay. Also, you can pay electronically online, by phone using the IRS Electronic Federal Tax Payment System (EFTPS), or by check, money order, debit card, or credit card.
Long-term payment plans give you 180 days to 72 months to pay your taxes, interest, and penalties, as long as you owe $50,000 or less on your combined tax bill.
If you set it up through automatic debit withdrawals, you pay a $31 setup fee if you apply online. If you apply by phone, mail, or in person, you pay $117 for setup. Low-income taxpayers might be able to get the fee waived.
If you decide to pay another way, like Direct Pay, EFTPS, or money order, you pay $130 in online setup fees or $225 to set up by phone, mail, or in person. Low-income taxpayers pay a $43 setup fee that the government reimburses upon pay-off.
You are responsible for the processing fee if you pay using a debit or credit card. A credit card charges up to 2% of the payment, while a debit card may cost $2 to $4 per payment.
You must make payments via automatic withdrawals via direct bank debit if you owe more than $25,000.
Can the IRS Turn Down Your Payment Plan Application?
In a word, yes. Why?
- You are not current with this year's tax return filing
- Your living expenses are not all considered necessary
- The information you provided on Form 433-A, Collection of Information Statement, is incomplete or untruthful
- You defaulted on a prior payment or installment plan
So…file all your past and current returns, make sure you don't have significant credit card payments, private school tuition, or other extravagances, tell the truth about your income and property, and hope you didn't default.
A default on a prior plan isn’t an automatic “No!” but it can cause the IRS to be quite skeptical about your new request.
What if they say no anyway?
Keep negotiating. Ask to speak to the collection agent’s manager, then on up the chain to the manager’s immediate boss, the collections branch chief, and the district director. You might be able to convince someone you’re worth the risk.
You must also understand that the IRS can revoke an installment agreement if you fail to file tax returns or pay taxes that arise after you begin an installment agreement. They can also call a halt if you miss a payment, although you usually get 60 days before they revoke the plan — the first time you miss a payment. You are entitled to a warning. You may be entitled to reinstatement.
If your financial condition changes substantially, for better or worse, you must notify the IRS. The agency reviews these agreements every year or so and requires you to submit a new Form 433-A to continue the agreement, so the sooner you tell the agency, the better.
If the IRS discovered you provided inaccurate or incomplete information as part of the negotiations, you have probably lost your installment agreement for good.
Top Tax Defenders Gets It
Nobody likes to pay taxes. Sometimes you find yourself without enough to pay the entire amount at once. Don’t ignore it and hope it all goes away.
Request an installment agreement to begin paying your tax bill, and, if you need assistance, contact Top Tax Defenders. We can help.