What Is an IRS Installment Plan and How Does It Work?

An IRS Installment Agreement is a formal arrangement with the Internal Revenue Service (IRS) that allows individuals and businesses to make monthly payments on their outstanding tax liabilities over an extended period. This agreement serves as a flexible option for taxpayers who are unable to pay their full tax debt immediately. Its primary purpose is to provide relief, helping taxpayers avoid more severe collection actions from the IRS.

Understanding IRS Installment Agreements

An IRS Installment Agreement represents a legally binding commitment between the taxpayer and the IRS, outlining a structured plan for monthly tax debt payments. These agreements typically span up to 72 months, or six years, allowing for a manageable repayment schedule. While an agreement is in place, interest continues to accrue on the unpaid balance. A failure-to-pay penalty is also applied, though this rate is often reduced once an installment agreement is established and payments are made on time.

Entering an installment agreement generally suspends IRS collection actions, such as levies or the filing of tax liens, as long as payments are made consistently and on schedule. There are different types of installment agreements available, including Streamlined Installment Agreements, which offer a simplified application process for lower debt amounts. Non-streamlined agreements are also available, often for larger debts, and may require more detailed financial disclosures.

Determining Eligibility

To qualify for an IRS Installment Agreement, taxpayers must meet specific criteria, primarily revolving around the amount owed, filing history, and current tax compliance. For individuals, the total amount owed, including tax, penalties, and interest, must generally be $50,000 or less to qualify for a streamlined agreement. For businesses, this threshold is typically $25,000 or less. Debts exceeding these amounts may still qualify for an installment agreement, but they typically fall under non-streamlined terms, which require a more thorough review of the taxpayer’s financial situation.

Taxpayers must have filed all required federal tax returns before the IRS will approve an installment agreement. Taxpayers must also be current with their estimated tax payments or withholding for the current tax year, demonstrating ongoing compliance with tax obligations. While the IRS considers a taxpayer’s ability to pay, streamlined agreements usually involve less scrutiny of financial details compared to non-streamlined agreements, which may necessitate providing a Collection Information Statement (Form 433-F, 433-A, or 433-B).

The Application Process

Taxpayers have several methods to apply for an IRS Installment Agreement. The most common and often quickest method is through the IRS’s Online Payment Agreement tool. This online portal guides users through the application steps and can provide immediate approval for eligible taxpayers.

Another common approach is to submit Form 9465, Installment Agreement Request. This form can be completed and mailed to the IRS, either attached to a tax return or sent separately. Taxpayers can also apply by phone, by calling the IRS directly. For individuals, the general phone number is 1-800-829-1040, and for businesses, it is 1-800-829-4933.

Regardless of the chosen method, applicants will need specific information. This includes their Social Security Number or Employer Identification Number, the total amount of tax owed, and a proposed monthly payment amount. If opting for direct debit payments, banking information such as the routing and account numbers will also be required. After submission, the IRS reviews the application and generally notifies the taxpayer of approval or denial.

Managing Your Agreement

Once an IRS Installment Agreement is approved, taxpayers assume ongoing responsibilities to ensure the agreement remains in good standing. The most immediate obligation is to make all agreed-upon monthly payments on time.

Taxpayers must also continue to meet all future tax compliance requirements. This means filing all required tax returns and paying any new tax liabilities in full by their due dates while the installment agreement is active. Failure to meet these ongoing filing and payment obligations can lead to a default of the agreement.

Various payment methods are available to fulfill monthly obligations, including automatic direct debit from a bank account, which is often encouraged by the IRS. Other options include using IRS Direct Pay, paying by credit or debit card, or sending checks or money orders through the mail. If the agreement is defaulted on due to missed payments or non-compliance, the IRS will typically issue a Notice CP523, indicating an intent to terminate the agreement. Consequences of default include the full tax amount becoming immediately due, and the IRS resuming collection actions such as tax liens, levies, or wage garnishments. If financial circumstances change, it is possible to contact the IRS to request a modification of the agreement, potentially adjusting the monthly payment amount or due date.