If paying your tax bill all at once feels impossible, don’t worry—you’re not alone, and the IRS has options to help you out. IRS payment plans are designed to give you some breathing room by breaking your balance into manageable chunks. In this article, we’ll walk you through how these payment plans work, how to apply, and what you need to know to stay on track with your taxes. Let’s make paying your tax debt a little less overwhelming!
What Are the Benefits of Paying Taxes on Time?
We all know that paying taxes isn’t exactly fun, but it’s something we’ve got to do. And believe it or not, paying on time can actually save you from a lot of headaches. If you miss the deadline, the IRS can hit you with penalties for not filing or for not paying what you owe. If you don’t have the full amount when your taxes are due, they’ll tack on interest and monthly late payment penalties. Fun, right?
So, what’s the takeaway? Even if you can’t pay the full amount, it’s a good idea to file your return on time and pay as much as you can. This way, you can avoid piling up extra charges. And if you do pay late, try to pay as soon as possible to stop those penalties from growing.
Why Pay on Time?
- You avoid racking up more interest and penalties.
- You’ll keep future refunds intact (yep, they’ll take those if you owe).
- You can steer clear of trouble when you apply for loans.
If you can’t pay everything you owe, just pay what you can and check out the IRS.gov/payments page for payment options.
What’s a Payment Plan?
A payment plan is exactly what it sounds like—an agreement with the IRS that lets you pay your taxes over time. If you think you’ll be able to pay off your taxes in the future, but just not right away, this might be the way to go. You can set up a plan that works for you, and if you qualify for a short-term plan, there’s no setup fee. But keep in mind that if you don’t pay your taxes on time, the IRS might file a Notice of Federal Tax Lien or take other collection actions. Not fun.
What Happens When You Request a Payment Plan?
Once you ask for a payment plan (also called an installment agreement), the IRS can’t go after your money through levies (for the most part). They’ll review your request, and while they do that, their time to collect is paused. If your request gets rejected, the clock stays paused for another 30 days. And if you miss payments, the IRS will give you 30 days before they can start collections again.
What Are the Costs and Fees for IRS Payment Plans?
If the IRS approves your payment plan (also called an installment agreement), they’ll charge a setup fee. The fee depends on how you apply and how you’ll make your payments. Here’s the breakdown:
Paying in Full Now
If you can pay the full amount you owe today, there’s no setup fee, no interest, and no penalties moving forward. You can pay through:
- Direct Pay (straight from your checking or savings account)
- The Electronic Federal Tax Payment System (EFTPS)—you’ll need to enroll first
- By check, money order, or credit/debit card (just keep in mind that credit/debit card payments come with extra processing fees)
We recommend Direct Pay or EFTPS best, because it’s straightforward and fast. There’s always a risk of checks getting lost in the mail, or a human error might be involved.
Short-Term Payment Plan (Paying Off in 180 Days or Less)
Need a little extra time but can pay off the balance in under six months? That’s what the short-term payment plan is for, and it’s available for individuals only.
There’s no setup fee, but you’ll keep accruing penalties and interest until you’ve paid everything. You can pay by:
- Direct Pay
- EFTPS (if you’re enrolled)
- Check, money order, or credit/debit card (remember, credit/debit payments come with extra fees)
Apply online, by phone, mail, or in-person for free.
Long-Term Payment Plan (Paying Monthly Over Time)
If you need more time and want to pay in monthly installments, that’s a long-term payment plan. Here’s how it breaks down:
Option 1: Direct Debit (Automatic Monthly Payments)
This is where the IRS automatically takes payments from your checking account each month. It’s also called a Direct Debit Installment Agreement (DDIA).
- Apply online: $22 setup fee
- Apply by phone, mail, or in-person: $107 setup fee
- Low-income taxpayers: No setup fee, regardless of how you apply
Keep in mind, penalties and interest will keep adding up until the full balance is paid off.
Option 2: Manual Monthly Payments
If you prefer to pay manually each month (instead of automatic payments), here are your options:
- Direct Pay
- EFTPS
- Check, money order, or credit/debit card (with those pesky fees)
- Apply online: $69 setup fee
- Apply by phone, mail, or in-person: $178 setup fee
- Low-income taxpayers: $43 setup fee (which might be reimbursed if you meet certain conditions)
And, as always, penalties and interest will keep building until you’ve paid off the balance.
Changing an Existing Payment Plan
Already on a payment plan but need to make changes? You can revise your plan and here’s what it’ll cost:
- Online revisions: $10 fee (can be reimbursed if you’re low-income and meet certain conditions)
- Phone, mail, or in-person revisions: $89 fee ($43 for low-income, which can also be reimbursed)
If you’re only changing the bank account tied to a Direct Debit plan, there’s no fee.
What About Credit/Debit Card Fees?
If you’re paying with a credit or debit card, there’s an extra processing fee. These fees go to the payment processor, not the IRS, and limits may apply depending on the amount you’re paying.
So, while there are some fees involved in setting up and managing a payment plan with the IRS, it’s worth it if it helps you pay off your taxes without getting into further trouble. Need more time? Want a clear payment plan? The IRS has options, and now you know the costs that come with them. Why wait and let interest build up? The sooner you act, the sooner you can be done with it!
Why Do I Owe Interest and Penalties?
Interest and penalties don’t stop until you pay off your balance. So, even if you’re on a payment plan, those extra charges keep adding up. The faster you pay it off, the less you’ll have to deal with in the long run. Doesn’t that make you want to get it done sooner rather than later?
Why Is There a Setup Fee for Payment Plans?
It might seem annoying, but the IRS charges a setup fee to cover the cost of managing your payment plan. If you qualify as a low-income taxpayer, the fee might be waived if you agree to make automatic payments.
Am I Eligible for a Fee Waiver or Reimbursement?
If you’re a low-income taxpayer (earning at or below 250% of the federal poverty level), you could be eligible to have the setup fee waived or reimbursed. The easiest way to get the waiver is by setting up a Direct Debit Installment Agreement (DDIA). If you’re low-income but can’t make electronic payments, you can still get reimbursed for the fee after you complete the payment plan.
If you think you qualify but the IRS didn’t mark you as low-income, you can fill out Form 13844 to request a reduced user fee.
How Can I Check My Balance and Payment History?
You can check your balance and payment history through the IRS’s Online Account tool. You’ll need to go through a quick identity verification process to get in, but once you’re in, you can view everything you need.
Am I Eligible to Apply for a Payment Plan Online?
Your eligibility depends on how much you owe and your tax situation. If you’re an individual and owe $50,000 or less (taxes, penalties, and interest combined), you’re probably eligible for a long-term payment plan. If you owe less than $100,000, you could set up a short-term plan (paying it off in 180 days or less).
Businesses can apply online too, but the rules are a little different. If you owe $25,000 or less, you can set up a payment plan online, as long as all your returns are filed.
How Do I Manage My Payment Plan?
To avoid defaulting on your payment plan, here’s the game plan:
- Pay at least your minimum amount each month.
- File all your tax returns on time and pay any new taxes owed.
- Your future tax refunds will go toward your debt until it’s paid off, so keep that in mind.
- Even if a refund gets applied to your balance, make sure to continue making your regular payments.
Need to make changes to your payment plan? You can update things like your payment amount or due date by logging into the Online Payment Agreement tool.
What If I’m Not Eligible for a Payment Plan Online?
If you don’t qualify to apply for a payment plan online, you’ve still got options. You can apply by phone or by mail using Form 9465. If you’re having trouble or missed payments, call the IRS as soon as possible to avoid default.
How Do I Avoid Defaulting on My Plan?
To keep your payment plan in good standing, just make sure you pay the agreed-upon amount on time every month and file your tax returns. If you move, let the IRS know. There are a few ways to inform the IRS of your new address: mail, phone, or by filing a tax return. If you move just before submitting your tax return, you can simply put your new address in your tax return, and the IRS will update your address when they process your tax return. If you work with a tax preparer, also don’t forget to let them know! You can also submit Form 8822 (change of address) to the IRS. And, of course, keep an eye on your payments to avoid surprises. If your plan goes into default, you might face a reinstatement fee, so it’s best to stay on top of things.
That’s the lowdown! Paying taxes isn’t fun, but staying on top of things and knowing your options can save you a lot of trouble down the line. Got questions? The IRS has tools and resources to help you sort it all out.