Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
Is it possible to arrange an IRS payment plan for taxes owed?
Yes, the IRS allows most taxpayers to set up a payment plan, letting you pay off your tax debt in manageable monthly installments.
Filing Form 9465 helps you break up the total amount into smaller payments, which is useful if paying it all upfront would be financially difficult.
Having a payment plan also reduces the likelihood of the IRS taking collection actions, such as wage garnishment, as long as you’re staying current with the agreed installments.
Who can use Form 9465 for a payment plan?
Form 9465 is available to individuals and businesses who owe taxes and need extra time to pay. If you owe less than US$50,000, you can qualify for an installment plan without needing to provide detailed financial information.
For balances over US$50,000, you may still qualify but will have to submit additional financial documentation. Small businesses owing less than US$25,000 are also eligible for an installment plan.
What types of IRS installment agreements are available?
There are two main types of IRS payment plans:
- Short-Term Payment Plan: This is an option for those who owe less than US$100,000 in combined taxes, penalties, and interest. It allows repayment within 120 days and doesn’t require a setup fee. However, interest and penalties still accumulate on any unpaid balance until it’s fully paid.
- Long-Term Installment Agreement: For those owing less than US$50,000, a long-term payment plan provides flexibility to pay over several years. A setup fee applies, and interest and penalties continue to be charged on the outstanding balance until it’s cleared.
What are the fees and penalties associated with a payment plan?
Yes, IRS payment plans come with associated fees:
- For long-term plans, the setup fee is around US$31 if you use automatic bank payments and US$149 for other payment methods.
- Low-income applicants may be eligible for reduced or waived setup fees based on financial need.
- Additionally, the IRS charges interest on unpaid balances, and missed payments could lead to extra penalties.
Can I consolidate taxes owed from multiple years into one plan?
Yes, the IRS allows you to include tax debt from several years within one installment agreement. When you complete Form 9465, enter the total balance owed across all the years you want to cover with the payment plan.
This approach simplifies your repayment, as you’ll only need to track one monthly payment to pay down the total amount.
How do I stay on track with my payment plan?
Once the IRS approves your payment plan, make sure to keep up with monthly payments. Missing a payment can cause penalties and interest to rise, or even cause the IRS to terminate your agreement.
If your financial situation changes, consider contacting the IRS to discuss adjusting your plan.
What happens if I miss a payment after setting up an agreement?
If you miss a payment under your IRS agreement, the IRS could cancel your plan, making the remaining balance immediately due. This would also result in continued interest and penalties. If you anticipate a missed payment, contact the IRS as soon as possible to request a modification or explore alternatives to keep your plan active.
However, repeated missed payments may lead to more serious actions, such as wage garnishment or a lien on your assets.
How long does it take for the IRS to approve a payment plan?
IRS approval typically takes 30 to 60 days but may vary depending on your method of filing (online vs. mail) and individual circumstances.
Sometimes, the IRS may request additional information, which can add time. While waiting for approval, it’s a good idea to pay what you can to minimize any extra interest or penalties.
Can I change my payment plan if my financial situation changes?
Yes, if your finances change, the IRS lets you adjust your payment plan. For example, if you experience a significant increase or decrease in income, you can contact the IRS or refile Form 9465 to adjust your monthly payments.
The IRS may charge a fee to change the plan, and your request will be reviewed based on your current financial status and payment history.
What are the pros and cons of using an IRS payment plan?
Pros:
- Flexible Payments: A payment plan lets you manage your balance with monthly payments instead of paying it all at once.
- Avoids Severe Collection Actions: Setting up a plan may prevent serious IRS actions, such as bank levies or wage garnishment.
- Variety of Options: Both short-term and long-term plans are available, so you can select the option that best suits your needs.
Cons:
- Interest and Penalties Accrue: Even with a payment plan, the IRS still charges interest and may apply late payment penalties until the debt is fully paid.
- Setup Fees: There are fees to set up a payment plan, with direct debit typically being the least expensive option.
- Risk of Termination: Missing payments could result in the IRS canceling your plan, potentially leading to penalties and serious collection actions.
