How to Set Up a Payment Plan with the IRS: A Step-by-Step Guide

Paying off tax debt can be a daunting task, especially if you don’t have the means to make a lump sum payment. The good news is that the Internal Revenue Service (IRS) understands that many taxpayers struggle to pay their taxes in full and, as such, they offer payment plans to make the process more manageable. In this article, we’ll explore the steps you need to take in order to make a payment plan with the IRS, in relaxed English language that’s easy to understand.

Firstly, it’s important to understand that there are different types of payment plans, depending on the amount of debt you owe and your financial situation. One popular option is the installment agreement, which allows you to make monthly payments towards your tax debt. Another option is the Offer In Compromise, which allows you to settle your tax debt for less than what you owe. Regardless of which option you choose, it’s important to take action as soon as possible to avoid accruing additional penalties and interest. So, let’s dive into how to make a payment plan with the IRS.

Section: Key Factors to Consider When Making a Payment Plan with the IRS

1. Understand Your Tax Debt

The first step to making a payment plan with the IRS is to fully understand your tax debt. The IRS will typically send a notice explaining the amount of tax you owe, including any penalties and interest that have accrued. Take the time to review this notice carefully and make sure there are no errors in the amount owed.

2. Determine Your Ability to Pay

Before making a payment plan with the IRS, it’s important to determine your ability to pay. Review your current finances to determine how much you can realistically afford to pay each month. Consider your income, expenses, and any other debts you may have.

3. Choose a Payment Plan Option

The IRS offers several payment plan options for taxpayers who are unable to pay their tax debt in full. These plans include installment agreements, partial payment installment agreements, and offers in compromise. Review each option carefully to determine which one is the best for your situation.

4. Gather Your Documentation

When making a payment plan with the IRS, you’ll need to gather documentation to support your financial situation. This includes bank statements, pay stubs, and other financial records. Make sure you have all the necessary documents before contacting the IRS.

5. Contact the IRS

To make a payment plan with the IRS, you’ll need to contact them directly. This can be done by calling the phone number included on your tax notice or by visiting an IRS office in person. Be prepared to explain your financial situation and provide documentation to support your claims.

6. Negotiate Your Payment Plan Terms

When making a payment plan with the IRS, you have the opportunity to negotiate the terms of your plan. This includes the monthly payment amount and the duration of the plan. Work with the IRS to come up with terms that are affordable for your situation.

7. Make Your Payments on Time

Once your payment plan is established, it’s important to make your payments on time. Failure to do so can result in penalties and additional interest charges. Consider setting up automatic payments to ensure you don’t miss a payment.

8. Request Changes When Necessary

If your financial situation changes, you may need to request changes to your payment plan. This can include adjusting the monthly payment amount or requesting a temporary delay in payments. Contact the IRS immediately if you need to make changes to your plan.

9. Understand the Consequences of Defaulting on Your Plan

If you default on your payment plan, the consequences can be severe. This includes additional penalties and interest charges, as well as collections actions such as wage garnishment and bank levies. Make your payments on time and contact the IRS immediately if you’re unable to make a payment.

10. Seek Professional Help

If you’re struggling to make payments or negotiate a payment plan with the IRS, seek professional help. This can include working with a tax professional or contacting a low-income taxpayer clinic. These resources can provide guidance and support throughout the process.

The Steps to Creating a Payment Plan with the IRS

Creating a payment plan with the IRS may seem like a daunting task, but it is actually quite straightforward. By following these steps, you can ensure that you are able to make a payment plan that will work for both you and the IRS.

Step One: Determine Your Eligibility

Before you start creating a payment plan, it’s important to determine whether you are eligible to do so. In general, most taxpayers are eligible for payment plans if they owe less than $50,000 in taxes, penalties, and interest combined. If you owe more than this, you may need to explore other options, such as an Offer in Compromise.

Step Two: Calculate Your Monthly Payment

Once you have determined your eligibility, the next step is to calculate your monthly payment. You can do this by dividing your total balance due by the number of months in your payment plan. Keep in mind that there is a minimum monthly payment of $25.

Step Three: Choose Your Payment Plan Option

The IRS offers two types of payment plans: short-term and long-term. Short-term payment plans last for 120 days or less and do not require a setup fee. Long-term payment plans last for more than 120 days and require a setup fee. Depending on your financial situation, you may want to choose one option over the other.

Step Four: Complete Form 9465

To apply for a payment plan, you will need to complete Form 9465, which is the Installment Agreement Request. This form will ask you for information about your income, expenses, and liabilities, so be sure to have all relevant information on hand.

Step Five: Submit Your Application Online or by Mail

Once you have completed Form 9465, you can submit your application online using the IRS Online Payment Agreement tool or by mail. If you choose to submit your application by mail, be sure to include a check or money order for your first monthly payment.

Step Six: Wait for Approval

After submitting your application, you will need to wait for approval from the IRS. Depending on the complexity of your situation, this could take anywhere from a few days to several weeks. During this time, be sure to continue making payments on your tax liability.

Step Seven: Set Up Automatic Payments

Once your payment plan has been approved, you may want to set up automatic payments to ensure that you never miss a payment. This can be done online using the IRS Online Payment Agreement tool or by completing Form 433-D, which is the Direct Debit Installment Agreement.

Step Eight: Keep Up with Your Payments

Once your payment plan is in place, it’s important to keep up with your payments. If you miss a payment or make a late payment, you could be subject to penalties and interest charges.

Step Nine: Consider Making Extra Payments

If you are able to do so, consider making extra payments on your tax liability in order to pay off your debt more quickly. This can help you save money on interest charges and could allow you to pay off your debt ahead of schedule.

Step Ten: Review Your Payment Plan Annually

It’s a good idea to review your payment plan annually to ensure that it is still working for you. If your financial situation has changed, you may need to adjust your monthly payments or explore other options. Remember, the IRS is willing to work with you to find a payment plan that is manageable for both parties.

How to Apply for a Payment Plan with the IRS

Applying for a payment plan with the IRS is a straightforward process that can be done online or by phone. The IRS offers a range of payment plans to help taxpayers repay their back taxes and avoid levies or liens. Here are the details you should know before applying for any of the payment plans.

1. Understand the Different Payment Plans

The IRS offers several payment plans to help taxpayers repay their tax debts, including the Installment Agreement, Partial Payment Installment Agreement, and Offer in Compromise. The Installment Agreement is the most common payment plan, which allows taxpayers to pay off their tax debt in monthly installments. The Partial Payment Installment Agreement, on the other hand, is for taxpayers who can’t pay off their entire tax debts, but can make partial payments each month. Meanwhile, the Offer in Compromise is for those who owe more than they can pay, and it allows them to settle their tax debts for less than the full amount.

2. Gather Your Financial Information

Before applying for a payment plan, gather all the necessary financial information, such as your income, expenses, and debts. This will help you determine what type of payment plan you can afford and how much you can pay towards your tax debts each month. The IRS will also request this information when you apply for a payment plan.

3. Apply Online or by Phone

The easiest way to apply for a payment plan with the IRS is online. You can simply go to IRS.gov, navigate to the payment plan option and follow the instructions. You can also apply by phone by calling the IRS directly and providing your financial information over the phone. Applying online is the most convenient option as you can apply any time of the day without waiting in queues.

4. Negotiate a Payment Amount and Plan

After receiving your application, the IRS will review your financial information and determine if you qualify for a payment plan. They will also calculate your monthly payment amount based on your income and expenses. However, if you cannot afford their payment amount, you may negotiate a lower amount. You will need to provide proof of your financial hardship to support your argument.

5. Comply with the Payment Plan Requirements

Once you are approved for a payment plan, make sure to comply with all the requirements. This includes making your monthly payment on time, filing your tax returns on time, and paying your future taxes on time. If you fail to comply with the payment plan requirements, the IRS can cancel your payment plan and take enforcement action against you.

In summary, applying for a payment plan with the IRS can help you avoid severe penalties and interest associated with back taxes. By understanding the different payment plans and gathering your financial information, you can apply online or by phone and negotiate a payment amount and plan that works best for you. Remember to comply with the payment plan requirements to avoid harsh enforcement actions.

Time to Get Your Finances in Order!

Now that you know how to make a payment plan with the IRS, you can take the necessary steps to get back on track with your taxes. Remember, the IRS is here to help as long as you are open and honest about your financial situation. Don’t let the fear of penalties and interest keep you from taking action. With proper planning, you can get back to a place of financial stability. Thanks for reading, and we hope to see you again soon for more helpful tips!