What Is an Installment Agreement With the IRS?

An installment agreement with the Internal Revenue Service (IRS) offers taxpayers a structured payment plan to settle their tax liabilities over an extended period. The primary purpose of such an agreement is to help taxpayers resolve their debt in manageable monthly payments.

Understanding Installment Agreements

An installment agreement is a formal arrangement between the taxpayer and the IRS, outlining a schedule for regular monthly payments. The IRS offers these agreements to help taxpayers resolve their debt without enduring significant financial hardship. While an installment agreement is in effect, interest and penalties continue to accrue on the unpaid balance, which can increase the total amount owed over time.

Types of Installment Agreements

The IRS provides different types of installment agreements for various situations.

Streamlined Installment Agreement (SIA)

This option is available to individuals who owe $50,000 or less in combined tax, penalties, and interest. Businesses may also qualify for an SIA if they owe $25,000 or less. This agreement features a simplified application process and does not require detailed financial disclosure. Repayment is limited to 72 months.

Non-Streamlined Installment Agreement

For higher debt amounts exceeding $50,000, taxpayers may pursue a Non-Streamlined Installment Agreement. This type of agreement often requires a more thorough financial disclosure. Unlike streamlined options, non-streamlined agreements are not automatically approved and may involve negotiation with the IRS. A Notice of Federal Tax Lien may be filed as a condition of a non-streamlined agreement.

Guaranteed Installment Agreement

This agreement is available to individuals who owe $10,000 or less, excluding interest and penalties. To qualify, taxpayers must have timely filed all income tax returns and paid any income tax due for the preceding five years. They must also not have entered into an installment agreement for income tax in the past five years. The IRS must accept qualifying requests for this agreement, provided the taxpayer agrees to pay the full amount within three years and remains compliant with tax laws. A significant benefit of this agreement is that the IRS will not file a tax lien on the taxpayer’s property.

Eligibility and Conditions

To qualify for an installment agreement, taxpayers must meet several criteria. A primary requirement is having filed all required tax returns, including all past-due returns, as non-filing can prevent approval of a payment plan. Taxpayers must also remain current with all future tax obligations, meaning timely filing of returns and paying any new taxes due. Failure to do so can lead to default of the agreement.

The core condition for obtaining an installment agreement is demonstrating an inability to pay the full tax amount immediately. The IRS assesses a taxpayer’s financial situation to determine a reasonable monthly payment amount.

While an installment agreement can prevent or halt certain IRS collection actions, such as wage garnishments or bank levies, a Notice of Federal Tax Lien may still be filed in some instances. A lien secures the government’s interest in the taxpayer’s assets and can impact credit.

Requesting an Installment Agreement

Requesting an installment agreement involves gathering financial information. Taxpayers should compile details regarding their income, expenses, assets, and liabilities. This financial data demonstrates the taxpayer’s ability to pay the full tax debt immediately, or their inability, and helps propose a realistic monthly payment.

The primary form used to request an installment agreement is Form 9465, Installment Agreement Request. This form collects basic taxpayer information and the proposed monthly payment amount. For higher debt amounts or when the IRS requires a more detailed financial assessment, additional forms may be necessary. These include Form 433-F, Collection Information Statement, which is a simplified financial statement often used for automated collection cases or debts over $50,000.

For wage earners and self-employed individuals with complex financial situations or larger debts, Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, may be required. This form provides a detailed look at income, expenses, assets, and liabilities. All necessary forms can be obtained from the IRS website or by mail.

Managing Your Installment Agreement

Once an installment agreement is approved, taxpayers must adhere to its terms to maintain the agreement’s validity. Monthly payments can be made through various methods:
Direct debit from a bank account, which often offers a reduced user fee.
IRS Direct Pay using a checking or savings account.
Mail with a check or money order.
Electronically using a credit or debit card, though processing fees may apply.
The Electronic Federal Tax Payment System (EFTPS), requiring prior enrollment.

Ongoing compliance with future tax obligations is important. Taxpayers must file all subsequent tax returns and pay any new taxes due on time. If a taxpayer’s financial circumstances change significantly, such as an increase or decrease in income, the IRS should be notified. This may necessitate an adjustment to the monthly payment amount to reflect the updated financial situation.

Failing to meet the terms of an installment agreement can lead to severe consequences. If a taxpayer misses a payment, fails to file future returns, or does not pay future taxes, the IRS may declare the agreement in default. The IRS sends a notice indicating an intent to terminate the agreement and providing a period to rectify the issue. If the default is not cured, the agreement will be terminated, and the full tax balance, along with accrued penalties and interest, becomes immediately due. The IRS may then resume aggressive collection actions, including levies on wages or bank accounts, or the filing of a Notice of Federal Tax Lien.