Do you owe back taxes to the IRS? Are you having trouble coming up with the money to pay your Federal taxes? You aren’t alone. Every year, many people find out that they owe more in taxes than they initially expected. And while that can be distressing, an IRS Installment Agreement may be a possible solution. At Samaritan Tax Relief, we can help you resolve your debts with as minimal impact as possible.
Is It Possible to Settle Your Tax Debt for “Pennies on the Dollar”?
If you are like many taxpayers who are burdened with an insufferable amount of back tax debt, you have undoubtedly heard claims of “settling your tax debt for pennies on the dollar.” As with anything, if it seems too good to be true, it usually is. While there are mechanisms for settling a tax debt, a payment plan is far more realistic. The IRS Installment Agreement is the most likely approach for you to settle your tax debt.
If you’re financially unable to pay your tax debt immediately, you can make monthly payments through an IRS installment agreement. An installment agreement allows you to make a series of monthly payments over time, up to a period of 72 months.
While it is sometimes possible to negotiate with the IRS to settle for less than what you owe, it’s generally only possible if you absolutely cannot pay what you owe. It’s only advantageous if you owe an amount of money so large that you would never conceivably be able to pay it back. Claims that you can easily settle your tax debt with the IRS for pennies on the dollar are frequently misleading.
What is an IRS Installment Agreement?
Under an IRS payment plan, you make an agreement with the IRS to pay off your total balance over a specific period of time.
While under a payment plan, your balance is still subject to interest and a monthly late payment penalty. Payment plans are for up to 72 months. You can make additional payments towards the debt through the IRS’s online payment interface.
When you owe the IRS taxes, the IRS can take actions such as wage garnishment and bank levies. Once you sign up for a payment plan, this will no longer happen. It’s best to take action before the IRS does.
The IRS takes adverse action regularly. If you’re in debt to the IRS now, it’s time to start resolving the situation. IRS payment plans are generally very reasonable. It’s possible for you to get back to square one.
What are the Requirements for an Agreement?
Before applying for an IRS installment agreement, your tax filings and payment requirements need to be current. You need to have filed all of your tax returns. Approval is based on the amount that you owe. If you owe under $10,000, approval is usually automatic.
If you owe over a certain amount (generally $100,000 or higher), you may need to furnish statements regarding your income and assets. This information disclosed on the Form IRS 433-F determines your ability to pay. Either way, you will need to guarantee that you will make a monthly payment, and if you fail to make this payment, your installment plan may be canceled.
For many people, the most difficult step will be ensuring that their taxes have been filed on time and correctly, as this is going to matter when calculating the amount of tax that you owe.
How Much Does an IRS Installment Agreement Cost?
The IRS charges a one-time setup fee when you apply for a long-term payment plan. The amount you’ll pay depends on the type of plan you choose, how you apply, and how you send your payments.
Short-Term Payment Plan (180 days or less)
If you can pay off your balance within 180 days and owe less than $100,000 in combined tax, penalties, and interest, there’s no setup fee whether you apply online, by phone, or by mail.
Long-Term Payment Plan (more than 180 days)
If your balance is under $50,000 and you need more than 180 days to pay, here’s what the IRS charges:
If you use automatic bank withdrawals (Direct Debit):
- $22 setup fee if you apply online
- $107 setup fee if you apply by phone, mail, or in person
- The IRS may waive the fee for low-income taxpayers.
If you use other payment methods, such as EFTPS, check, money order, etc.:
- $69 setup fee if you apply online
- $178 setup fee if you apply by phone, mail, or in person
- $43 setup fee for low-income taxpayers, which the IRS may reimburse later
Low-income taxpayers may qualify for reduced or waived fees by submitting Form 13844. The IRS defines “low-income” as having an adjusted gross income not exceeding 250% of the federal poverty level.
Even with the fees, an IRS installment agreement is often less expensive than taking out a loan or putting your balance on a credit card. It’s a straightforward way to handle your tax debt without damaging your credit or borrowing at high interest rates.
Are There Different Types of IRS Installment Agreements?
There are four main types of IRS installment agreements: Guaranteed, Streamlined, Partial Payment, and Non-Streamlined. Each one works a little differently depending on how much you owe and how long you need to pay it off.
1) Guaranteed Installment Agreement
If you owe $10,000 or less (excluding penalties and interest), this is the simplest option. As long as you’ve filed all required returns, haven’t used a payment plan in the past five years, and can pay off the balance within 36 months, the IRS will approve it.
You won’t need to submit financial documents, and you can make payments by check, EFTPS, or direct debit. It’s straightforward and often the quickest to set up.
2) Streamlined Installment Agreement
This option works for balances between $10,000 and $50,000. You can apply online, and the IRS won’t ask for any financial documents as long as you agree to pay the balance within 72 months.
If your balance is between $25,000 and $50,000, the IRS may require you to pay by automatic bank withdrawals.
3) Partial Payment Installment Agreement (PPIA)
If you can’t afford to pay your full debt, even over time, a PPIA lets you make smaller payments based on what you can actually afford. You’ll need to submit a detailed financial statement using Form 433-A or 433-F. The IRS will review your financials every two years.
This plan is best for taxpayers in long-term financial hardship. The IRS might revisit your case and increase your payments if your situation improves.
4) Non-Streamlined Installment Agreement
This is for taxpayers who owe more than $50,000 or need more than 72 months to pay. You’ll need to propose a plan and support it with documentation of your income, assets, and expenses. The IRS will review your ability to pay and may counteroffer if they think your payments are too low.
Due to the additional paperwork and processing time required, this type of plan isn’t available online. It’s best to work with a tax professional if you’re going this route.
How Do You Get an IRS Installment Agreement?
To get an IRS installment agreement, you will need to fill out Form 433-D. This form is available through the IRS website. You can file for an installment agreement online or via mail. At the time of submitting Form 433-D, you will need to have already submitted all of your tax returns and successfully had them accepted by the IRS. This allows the IRS to know exactly how much you owe before you calculate your IRS installment payment.
When filling out the IRS installment agreement, you will submit banking information for your direct debit payments. Your payments begin after the approval the IRS installment agreement. You can check on the status of your installment agreement and your payments at any time on the IRS.gov website. You can also manage your installment plan online.
What Happens After You Get an IRS Installment Plan?
Once your IRS installment plan is approved, you’ll begin making monthly payments toward your tax balance. These payments continue until the debt is fully paid off.
While you’re on the plan, any tax refunds you’re owed will be applied to your outstanding balance. You still need to make your monthly payments on time, even if a refund is credited to your account.
You’re also expected to stay current with future tax filings and payments. That means filing your returns on time every year and paying any new tax balances in full. Falling behind on new taxes can put your existing plan at risk.
FAQs About IRS Installment Agreements
Yes. The IRS can reject your request if you haven’t filed all required tax returns or if they believe you can afford to pay more than what you’re offering. Even after approval, they can cancel your plan if you miss a payment, file a return late, or don’t pay new taxes when they’re due.
No, the IRS doesn’t report payment plans to credit bureaus, so your installment agreement won’t affect your credit score. But it can help you avoid credit damage by keeping you out of bankruptcy or preventing a tax lien.
If the IRS files a lien before you enter into a plan, that lien could show up on your credit report and stay there for up to seven years. The good news is that the IRS may withdraw the lien once you set up a payment plan or begin paying back your balance. Unlike bankruptcy, a tax lien doesn’t leave a long-lasting mark once it’s resolved.
If you miss a payment, the IRS gives you a 30-day grace period. As long as you make the payment within that window, your plan remains active. If you don’t, the IRS can cancel it. You can ask them to reinstate it, but approval is up to the IRS, not guaranteed.
If you can’t keep up with your monthly payments, call the IRS right away at 800‑829‑1040 and explain what’s changed. You can ask them to lower your payment amount to match your current finances, as long as you can show proof of the new situation.
If lowering the payment still doesn’t help, you may qualify for other options, such as Currently Not Collectible (CNC) status, a Partial Payment Installment Agreement (PPIA), or an Offer in Compromise (OIC). Each option depends on your financial situation and the amount you can reasonably afford to pay.
Yes, you can. The IRS won’t penalize you for paying extra or paying off your balance early. In fact, making larger payments can help you cut down on interest and get rid of the debt faster. Just make sure your regular monthly payments are still made on time while you’re paying extra.
Getting Help From Tax Samaritan
Are you currently behind on your taxes? It’s time to take control over your financial situation with Tax Samaritan. At Tax Samaritan, we can help you get current on your tax returns and your tax payments, and we can advise you on the best option for you. You don’t need to tackle your problems alone: we can help. With the IRS, every day matters, and it’s best to fix your tax situation now.
Our goal at Tax Samaritan is to provide the best counsel, advocacy, and personal service for our clients. We are not only tax preparation and representation experts, but we also strive to become valued business partners. Contact us today to request a payment plan or installment agreement from the Internal Revenue Service or any state authority.
