Understand Your IRS Payment Options
An IRS notice of back taxes can hamper your finances, but the federal agency will still expect you to pay in full. Fortunately, payment options may be available to you if you meet specific criteria.
IRS payment plans are designed to break your tax debt up over time, allowing you to pay your balance in installments (much like a credit card balance). And like a line of credit, it must be approved and comes with certain conditions. Before deciding that a tax payment plan is your best option, consider some relevant details.
Making a request: Like a creditor, the IRS understands it may not be feasible for you to pay back a large sum all at once. If you’re approved by the IRS for a payment plan, you will pay back your balance over a period of months or years. Making the case for an IRS payment option is complicated, so consider enlisting professional help.
Your IRS repayment strategy: Do you want a more affordable, manageable way to pay your tax debt? Or do you need to buy yourself more time to contest the debt? In either case, consulting with a licensed tax professional is essential to finding the best solution. A tax professional can help you determine if an IRS installment agreement is necessary for your situation and work with the IRS on your behalf.
Take Precautions Before Paying:
• Never automatically assume that the information the IRS presents to you is correct
• Double-check your returns and, if possible, review everything with your accountant (a licensed tax professional can also perform this function)
• Always verify details provided on notices and, if you have questions, refer to a professional before acting
A big bill from the IRS can send anyone into a shock. If you lack the financial means to pay your debt back immediately, you can apply for an IRS Installment Agreement.
Spreading out tax debt payments: An Installment Agreement with the IRS works much like any other monthly payment arrangement (e.g. a loan or line of credit). Rather than being forced to pay back the entire balance at once, the plan allows you to pay back your debt over an extended period of time – perhaps as long as several years.
Requesting an Installment Agreement: IRS payment options aren’t always one-size-fits-all solutions – for instance, some plans are built around how much you owe and your ability to pay. A licensed tax professional can determine the best monthly rate for which you may be approved, request the IRS installment agreement online or by phone, and finalize the details of your arrangement.
Paying your balance: The hard and fast rule is, “Pay as much as you can as fast as you can.” This will help avoid additional penalties. You’ll still be responsible for paying interest and penalties for your delinquent tax balance until the liability is completely satisfied, even if you’re on track with making your monthly payments.
If you are unable to pay: Don’t submit an Installment Agreement Request Form (Form 9465) if you’re unable to pay anything at all to fulfill the agreement’s terms. You may be eligible for alternative options, such as Currently Non-Collectible status, which prevents you from having to pay anything for a determined period. A licensed tax professional can help explore all your options and work with the IRS on your behalf.
IRS Direct Pay: This method can be used for filing individual tax bills or making estimated tax payments directly from your bank account (checking or savings) to the IRS. To use Direct Pay, you need to have a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN). There is no additional cost to pay via Direct Pay. You’ll receive confirmation that your pay has been submitted. The bank account information you provide is not stored in the IRS systems.
Electronic Federal Tax Payment System (EFTPS): Both businesses and individual taxpayers can use EFTPS to make income tax payments, employment tax payments, and estimated and excise tax payments. The site is available 24/7 and can be accessed via computer or smartphone. Additionally, you can schedule payments for up to 365 days in advance. To access the EFTPS website, you must have a secure Internet browser with 128-bit encryption. Use the following three items to sign up:
• EIN or SSN
• EFTPS Personal Identification Number
• Internet password
Payment by Check or Money Order: If you choose to pay via mail, then you can make your check, money order or cashier’s check payable to the U.S. Treasury. Include your name, address, SSN, daytime phone number, tax period and the tax notice or form number on your method of payment. Do not affix your check or money order to other documents.
Payment by Debit or Credit Card: To process payments made by debit or credit cards, the IRS uses standard service providers and business/commercial card networks. This method will charge you a processing fee (amount varies by provider), which may be tax deductible. The IRS does not charge any fee for the transfer or the processing of the payment.
When you apply for a payment plan, including certain types of Installment Agreements, Offer in Compromise, or Currently Not Collectible status, the IRS asks you for a financial statement, Form 433-A.
When you apply for any type of payment plan, the IRS will use information in a financial statement (Form 433-A) about your total income and assets to determine your ability to pay. The information you will need to include on Form 433-A includes:
• Your checking, savings, online (e.g. PayPal) financial accounts
• Your stored value cards (e.g. payroll card, child benefit card)
• Stock, bonds, mutual funds, and other investments
• Available credit on credit cards
• Your gross monthly wages and/or salaries without deductions, or net business income
• Any real estate, vehicles, and personal assets
• Current market value of your assets
• Self-employed individuals also need to share with the IRS their business bank accounts and business assets
The IRS will consider:
• Any assets that you can take a loan against,
• Any asset such as your car, boat, or house that you can sell to pay the tax debt, and
• Property that is yours but is held by someone else such as funds in bank accounts, retirement accounts, etc.
The IRS must leave you enough to live on, so include your necessary total living expenses such as:
• Food, clothing and miscellaneous
• Housing and utilities
• Vehicle ownership and operation
• Public transportation
• Health insurance
• Out-of-pocket health care costs
• Court ordered payments
• Current year taxes
• Secured debts
• Other expenses such as student loans, unsecured debts, and tuition fee.
Check the IRS’s Allowable Living Expenses National Standards to determine amounts. Under the Fresh Start program, the IRS may not ask for a financial statement if you owe $50,000 or less in tax debt and apply for an Installment Agreement. For tax debts that are greater than $50,000, and to request a tax debt reduction, you will need to provide the IRS with a financial statement Form 433-F.
Making a Request: Like a creditor, the IRS understands it may not be feasible for you to pay back a large sum all at once. If you’re approved by the IRS for a payment plan, you will pay back your balance over a period of months or years. Making the case for an IRS payment option is complicated, so consider enlisting professional help.
States offer many similar options to these IRS payment plans, but each one is different. Call your tax debt resolution professional to learn more about the options for your state.