How to setup a payment plan for your taxes?

The IRS doesn’t care how they are paid. They will go through hoops to ‘help’ you pay them. You can take a personal loan, or even charge a credit card right on their website to pay in full. Sometimes paying in full is not an option. What do you do then? You can make scheduled payments to the IRS for your tax due. The IRS refers to this as an installment agreement. It can be setup through various methods.

We are in an electronic age, and the common method to do things these days is on the internet – the IRS is actually up to date in that regard. On the IRS website – and please be sure you are on the .gov site, not any other – there is a big grey button near the top left that says ‘pay’. If you hover over this you have a few options, one of them is listed as ‘payment plan (installment agreement). If instead you click on the word pay, on the far left you will see a list, and it just says ‘payment plan’. Either way you end up at this location https://www.irs.gov/payments/online-payment-agreement-application

The IRS has been working to revamp their websites and taxpayer interaction to be more intuitive, and walking through that webpage is much more streamlined than it was in the past.

Alternatively, one could call the IRS and set up the payment plan over the phone with an IRS agent. Be warned, the hold times can exceed an hour. 1-800-829-1040 is the national IRS phone number.

The last option is sending in the form directly in the mail, made attractive by no hold time or fussing with the internet and creating a user/password – but filling out forms has its own downsides. The form is 9465 and searching for it via google will produce a good result – it should lead you here https://www.irs.gov/pub/irs-pdf/f9465.pdf

Generally, with an installment plan, if your total debt (if you owe for more than 1 year) is less than $25,000.00 you are able to setup a plan for up to 72 months – which is 6 years. The plan is not designed like a car loan or a home loan where the interest is pushed to the first part of the ‘loan’ (yes, interest still accumulates). It is a calculation they do based on total amount owed, adding the prior interest to the total (compounding interest). Paying the loan of faster does reduce total interest owed, but not in giant leaps like beforementioned car or house loans.

Due to how the interest works, often I advise my clients to sign up for the minimum payment possible for their debt (the minimum has to be able to pay the balance due within 72 months) – but the desire is to make bigger payments. The benefit to signing up for the minimum vs large payments is avoiding potential curveballs life inevitably throws at you. Don’t sign up for an aggressive $2,000.00 a month. Sign up for a modest $121.00 a month (or whatever your calculation comes to) but make those aggressive $2,000.00 payments anyway each month. Then when 2 tires blow out, or Christmas happens, you can still make your obligatory payment of $121.00, and be able to handle the curveball. Payment plans with the IRS are firm, you miss a single payment – you have voided the terms of the plan, and the total balance is now due. It isn’t fun to get that IRS letter in the mail. You can always just setup a new plan, but why go through the extra work.

Charles Steinmetz
Senior Tax Advisor

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