Published on: April 13, 2020 Last modified: April 28, 2020

How to File an IRS Installment Agreement

Stuff happens.  And regardless of why, you find yourself owing more taxes than you can afford to pay.   If you don’t have the cash to pay your tax debt, the IRS has options for tackling your tax bill with an installment agreement.  

Some people might think that IRS is a four-letter word.  Dealing with the IRS is likened to going to the dentist…with a toothache.  True, dealing with the Internal Revenue Service may not be one of life’s simple pleasures, but it doesn’t have to be as difficult as you may think.   And, with the help of a tax professional, your ache could be minimized.

Benefits of an IRS Installment Agreement

  • The major benefit to an installment agreement is, of course, that it gives you more time to pay off your debt.  
  • Once an installment agreement is approved and in place, the IRS will stop collection attempts.
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Who Should Apply for an Installment Agreement?

  1. Apply for an installment agreement if you cannot pay the full amount on your tax return.  You can attach the agreement to your return or fill it out online or mail it in.  
  2. Apply for an installment agreement if you received a notice from the IRS and cannot afford to pay the total due.
  3. Generally, you cannot afford to pay your tax bill but can pay it off in monthly installments over a 72 month or less time frame.
  4. To apply for an installment agreement, all past tax returns must be filed.
  5. You should not have a current installment agreement in place or have had one in the last five years.

Who Should Not Apply for an Installment Agreement?

Though you may still be able to set up an installment agreement, you should contact the IRS first if you already have an agreement in place, if you are in the middle of bankruptcy, or if you want to submit an offer in compromise.  Your tax professional can help can guide you if any of these conditions exist.  

How Do I Apply For An Installment Agreement?

  • Determine what you owe.  This should include any past debt as well as the current amount due.
  • File Form 9465 Installment Agreement Request.  A full set of instructions can be found on the IRS website.
    • If your tax bill is $10,000 or less, you will be automatically approved if you can pay it off over a three year period, have no installment agreement in place or have not had one in place for the last five years, and all past returns have been filed.
    • If your tax bill is $50,000 or less, this may be filed online and is subject to approval.
    • Over $50,000, you will complete Form 9465, and additionally complete 433-F Collection Information Statement.  

How Do I Pay?

  • Direct Debit:  This is the preferred method of payment by the IRS.  It is a debit directly from your bank account on the same day each month.  There is less risk of forgotten or lost payments, which explains why it is less expensive to set up an agreement when direct debit is used.
  • Credit Cards can be set up as an automatic charge each month as well.  Just be sure that when your card renews, you make that change on your agreement or you could be in default.
  • Checks such as cashier’s checks, money orders, or personal checks are accepted.  Just keep in mind that the IRS must have receipt of your payment on or before your due date to prevent your agreement from being in default.  The IRS suggests 7-10 days to allow for mail delivery.

What are the Costs for an Installment Agreement?

  • The IRS will charge interest and penalties on the balance.  The IRS will compound interest daily equal to the short term federal funds interest rate plus 3%, calculated quarterly.  And even if you make your payments on time, you will incur a 0.25% penalty on the balance.  It is a bit difficult to calculate on your own, so if you don’t have a letter in hand, your tax professional will contact the IRS to get the amount due.  
  • There are fees involved in setting up the installment plan.  
    • $31 for online agreement plus direct debit
    • $107 for agreement not completed online with direct debit
    • $149 for online agreement with no direct debit
    • $225 for no online agreement and no direct debit

Some provisions may be made to the costs for an agreement if the taxpayer qualifies for low income status.

Tips And Reminders

  1. Pay On Time!  Once you have an agreement in place, it is essential to make your payments in full and on time.  Failure to do this could revoke your agreement and collection procedures could begin or resume.  If mailing, give the payment ample time to be delivered by the due date.  If circumstances make it impossible for your payment to be made timely and completely, contact the IRS proactively.  
  2. File On Time!  Your tax returns must be filed each year on time for your agreement to remain intact.  
  3. Don’t Expect a Refund.  Until your tax debt is satisfied, any refund amount will be applied to your debt.
  4. Don’t Panic!  Lucky for you, we are experts at working with the Internal Revenue Service.  The Silver Tax Group will answer your questions and set you at ease by doing what we do best: your taxes.

Benjamin Franklin has been accredited with the phrase: “in this world nothing can be said to be certain, except death and taxes.”   It’s true.  Taxes are not the most pleasant thing to deal with.  Taxes are not the fun topic at cocktail parties.  And taxes are not fully understood by most people.  But if you find yourself with questions and worries about your tax debt, contact us.  We are the experts and are here to help.

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