Can't pay in full by the due date? Don’t worry—the IRS may allow you to pay in installments. This method of payment must be approved by the IRS. Following approval, the IRS agrees to let you make monthly payments for your debt instead of paying in full. In return, you agree to make timely monthly payments and pay all future tax liabilities. You must also file all future returns required on time. This means you must plan to have adequate future withholding or estimated tax payments so that future tax liabilities are paid in full when you file your returns. If your balance due, including all penalties and interest, is not more than $50,000, you can apply online for a payment agreement instead of filing Form 9465.
The IRS virtually guarantees to let you use an installment agreement if you meet the following conditions:
- The amount you owe does not exceed $10,000.
- You've filed all required returns on time and have not had an installment plan in the past 5 years.
- The IRS determines you cannot pay the tax in full when it's due and you furnish the IRS with all the information needed to make this determination.
- You agree to pay the bill within 3 years and comply with the tax laws while the agreement is in effect.
Interest, late payment penalties and a processing fee apply. Here are the fees for setting up an installment agreement:
- $31 for a direct debit agreement.
- The fee for automatic payments is $107 and the fee for non-automatic payments online is $130. For non-automatic payments in person or by mail is $225.
- $43 if your income is below a certain level.
You may qualify for a short-term agreement if your balance is $100,000 or less. There are no set up fees for those who qualify for a short-term agreement (120 days or less).
Interest and penalties do not stop with an installment agreement/payment plan. Save money and minimize the interest and penalties you will be charged by paying the full amount you owe, as quickly as possible. Under an IRS installment agreement, in addition to the processing fees, you are charged interest at the current rate (adjusted quarterly) plus a late penalty of 0.5% (0.25% for taxpayers who filed returns on time).
To limit the amount of penalties and interest, it's a good idea to pay as much of your tax bill as possible with your return. The IRS recommends considering other less costly alternatives, such as a bank loan, before considering an installment agreement.
When you apply online, there are three payment options available:
- Pay in full
- Short-term extension (If you can pay the full amount you owe within 120 days, call 1-800-829-1040 to establish your request to pay in full. If you can do this, you can avoid paying the fee to set up an installment agreement.)
- Monthly payment plan
If you still want to set up an installment agreement, here are the ways to do it on your own:
- Apply online if you owe $50,000 or less in combined individual income tax, penalties and interest;
- Call the phone number on your bill or notice
- Complete and mail Form 9465, Installment Agreement Request (PDF). If you owe more than $50,000, you will also need to complete Form 433-F, Collection Information Statement (PDF).
You can also visit an H&R Block office and we can help you set up an installment agreement.
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