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Back Taxes and Tax Debt

How to Setup an IRS Payment Plan or Installment Agreement

Jo Willetts, EA

Director, Tax Resources

Published on: March 06, 2020

There are few things more concerning than owing the IRS money, especially given almost 40% of American adults would not be able to pay an unexpected $400 expense. Unexpected debt is a problem faced by millions of Americans, but when it comes to IRS debt, paying the entire amount in full is the best way of resolving the issue. This can be done by writing a check, sending in a money order, paying by credit card, or going online to irs.gov and paying the full amount as a direct debit (from a taxpayer's account directly to IRS). Taxpayers who are unable to pay in full have two types of installment plan agreements available.

Identifying the best installment payment plan and qualifying for it can be confusing, so it’s important to understand the basics of what these plans are and how they work.

What is an IRS payment plan?

A payment plan is an agreement with the IRS to pay the taxes owed within an extended timeframe.[1]  Taxpayers facing tax bills they cannot immediately handle but believe they can pay over extended periods may benefit from payment plans, and in specific instances, these plans may not carry any additional fees. Payment plans are typically divided into short and long-term categories; short-term plans last no longer than 120 days and long-term plans (also referred to as Installment Plans) last over 120 days.

Beyond avoiding late fees and interest, paying IRS debt on time helps avoid future refund offsets and the inevitable damage to one’s credit that comes with unpaid debt. For many taxpayers, a pending balance may be too large to pay at once. In these cases and many more, an IRS payment plan or installment agreement is the best way forward for all parties and may result in a lower overall payment for the taxpayer!

In most cases, an applicant’s unique tax situation and total amount owed will help determine which payment plan is best. Applying online offers the lowest application fees, especially when an auto-payment is set up as well. Applications are accepted in-person at various IRS locations, by phone, by mail, and online.

How do I apply for an IRS payment plan?

The process and fees for a payment plan vary depending on the amount of the debt and the application option (phone, online, in-person, mail) that is utilized. One important point to remember is that to successfully negotiate any debt solution with the IRS, all prior tax filings and business tax payments must be up to date. Submitting an application for consideration with any tax returns or prior debts outstanding, particularly if any type of payment is included in the application, may trigger an automatic rejection and forfeiture of the payment. The forfeited payment is typically applied to the outstanding debt. Similarly, any future tax refunds will be applied to any pre-existing debt even when an installment plan is in place.

When comfortable that all past returns and quarterly payments have been made, Form 9465 (Installment Agreement Request) is required to proceed. Additional information on how to navigate Form 9465 is available in the Instructions for Form 9465 Booklet. Low-income applicants (those with an adjusted gross income at or below 250% of the Federal Poverty Level) may qualify to have their application fees waived by utilizing IRS Form 13844. When applying online, all required documents are contained on the IRS website and no additional forms are required.

Additional fee waiver requirements and low-income thresholds are included within the document. A breakdown of both plans is provided below and will be defined by which plan is chosen, the debt threshold for each plan, and the means of application. For current information on the costs of each means of applying, please visit IRS.gov.

Type of Payment Plan Debt Threshold Means of Application

Short-term Payment Plan (120 Days or less to pay.Not available to businesses)

$100,000 (Taxes, Penalties, and fees combined)

Apply via phone, in-person, online or via mail.

Long-term Payment Plan (121 Days or more to pay.)

$50,000 (Taxes, Penalties, and fees combined)

Apply via phone, in-person, online or via mail.

IRS Payment Plan Data, 2019

How do I check my status?

You can check the status of an IRS installment agreement, pending balance, next payment date, and other features of a settlement by visiting IRS.Gov and logging into the account associated with the installment agreement. Pending account balances are updated every 24 hours once the account is activated. As part of a standard Resolution Package, Jackson Hewitt Specialists keep clients updated on the status of their applications and next steps to minimize a client’s engagement with the IRS and make the process less stressful.

The IRS requires information ranging from Tax ID Numbers to financial account numbers and multiple means of identity confirmation. Providing incorrect information can slow down the process significantly and potentially affect the payment terms of the installment plan.

How Jackson Hewitt can help

Jackson Hewitt’s team has a wide variety of tools to manage tax issues. Whether simple or complex, our team is trained to work directly with the IRS and keep our clients updated throughout the process. Contact us to learn about our resolution process and see how committed Jackson Hewitt is to working hard for the hardest working.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 25 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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