How Many Payment Plans Can You Have With the IRS?

The Internal Revenue Service (IRS) offers various payment solutions for taxpayers unable to pay their full tax liability immediately. Understanding these options is important for managing outstanding tax obligations and avoiding further complications. This article explains the different payment plans available, guides you through the application process, clarifies how multiple tax debts are handled, and details the responsibilities for staying compliant with an agreement.

Understanding IRS Payment Options

The IRS provides several options for taxpayers facing difficulty in paying tax debts.

An Installment Agreement (IA) allows taxpayers to make monthly payments over an extended period, up to 72 months. Short-Term Payment Plans offer up to 180 additional days to pay a tax liability in full, available to individuals owing less than $100,000 in combined tax, penalties, and interest. A Long-Term Installment Agreement is available if the combined tax, penalties, and interest are $50,000 or less for individuals. Streamlined Installment Agreements simplify the process for certain taxpayers, generally those owing $50,000 or less, by requiring less financial documentation. Guaranteed Installment Agreements are for those owing $10,000 or less, allowing repayment within three years with automatic approval if certain conditions are met.

An Offer in Compromise (OIC) allows certain taxpayers to resolve their tax debt for a lower amount than the total owed. The IRS considers the taxpayer’s ability to pay, income, expenses, and asset equity when evaluating an OIC. An OIC is typically accepted if it represents the maximum amount the IRS can expect to collect within a reasonable timeframe.

Currently Not Collectible (CNC) status is a temporary measure granted when a taxpayer demonstrates they cannot pay their tax debt due to financial hardship. While in CNC status, the IRS generally suspends collection efforts, though the debt, along with penalties and interest, continues to exist and may be pursued later when the taxpayer’s financial situation improves.

Applying for a Payment Plan

Applying for an IRS payment plan involves specific preparatory steps. Gathering all necessary financial information and documentation is an important first step. This includes income statements, bank statements, records of assets and liabilities, and detailed expense records.

Various IRS forms are used for payment plan applications. Form 9465, Installment Agreement Request, is used by individuals to propose a monthly payment plan. Form 656, Offer in Compromise, is required when proposing to settle a tax debt for less than the full amount. For detailed financial disclosure, individuals typically use Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, while businesses use Form 433-B, Collection Information Statement for Businesses. Completing these forms accurately with the gathered financial data is essential for a successful application.

Many taxpayers can apply for an Installment Agreement online using the IRS’s Online Payment Agreement tool if they owe $50,000 or less. Applications can also be submitted by mail or by phone. After submission, the IRS typically reviews the application, which may take several weeks or months, and may request additional information before communicating a decision.

Managing Multiple Tax Debts and Payment Plans

The IRS generally prefers to consolidate all outstanding tax debts into a single payment agreement whenever possible. This approach aims to simplify the collection process for both the taxpayer and the agency. However, certain situations may result in a taxpayer effectively managing multiple payment arrangements or components for different tax liabilities.

A taxpayer might have separate agreements for different types of tax, such as an Installment Agreement for individual income tax and another for business payroll tax. If a new tax debt arises while an existing agreement is in place, the IRS may adjust the current agreement to include the new liability or, in some cases, require a separate new agreement. For instance, an accepted Offer in Compromise for a specific tax year might coexist with an Installment Agreement for other tax years or types of tax that were not part of the OIC.

Incurring new tax debts after establishing an existing payment plan can significantly impact the current arrangement. The terms of an existing agreement often require taxpayers to remain current with all future tax filings and payments. Failure to meet these ongoing obligations, such as incurring new tax liabilities, can lead to the default or termination of the original payment plan. This can result in the full balance becoming due immediately and the IRS resuming other collection actions.

Staying in Compliance with Your Agreement

Once a payment plan is established with the IRS, maintaining compliance is important to avoid default and further collection actions. Making all scheduled payments on time is a primary requirement of any IRS payment agreement. Payments should be made consistently according to the agreed-upon terms, whether through direct debit or other methods.

Taxpayers are also obligated to file all subsequent tax returns on time. This includes filing returns for all tax types, such as income tax and, if applicable, payroll taxes for businesses. Additionally, all new tax liabilities that become due must be paid in full and on time.

If a taxpayer defaults on their agreement by missing payments or failing to meet other terms, the IRS may terminate the agreement. Consequences of default can include the full balance of the tax debt becoming immediately due, and the IRS may resume collection efforts such as issuing levies or filing liens. Penalties and interest continue to accrue on the outstanding balance, potentially increasing the total amount owed. Taxpayers facing difficulty meeting their payment plan obligations should contact the IRS promptly to discuss potential adjustments to their agreement.