When You Can't Pay Your Taxes in Full: Installment Agreements With the IRS

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A monthly payment plan is often the easiest way to pay off any large debt, including any major tax liability. The Internal Revenue Service (IRS) offers various payment arrangements and installment agreements to help taxpayers eliminate their tax debts.

You can request a new installment agreement online through the IRS website or by submitting Form 9465, but you must contact the IRS directly to add tax liabilities to an existing installment agreement. All agreements are subject to certain rules.

Note

The IRS will usually charge interest and penalties for late tax payments—even if you enter into an agreement.

Guaranteed Installment Agreements

The IRS will automatically agree to an installment plan if you owe no more than $10,000 and meet all of the following criteria:

  • You (and your spouse if you're married) haven't filed a late return or paid late in the previous five years. This does not include extensions of time to file. It means missing a tax deadline without taking any action. 
  • You agree to file on time and to pay on time in future tax years.
  • You agree to pay the amount you owe within three years.
  • You don't have an open bankruptcy proceeding.

Note

You might have to provide some information regarding your finances if you owe the IRS more than $10,000.

The main benefit of a guaranteed installment agreement is that the IRS will not file a federal tax lien or levy against you for outstanding taxes due. Tax liens, like mortgage liens, give the IRS the right to certain assets if you don't pay. A tax levy gives the IRS the right to seize certain assets. Both liens and levies can be reported to the credit bureaus and negatively impact your credit score.

Individual Payment Plans

If you owe more than $10,000, you may be able to set up an individual payment plan instead. These plans are available in both long-term (more than 120 days) and short-term varieties.

The plan options available to you depend on your tax debt. If the total of all your tax liabilities, penalties, and interest is $50,000 or less, and you've filed all required returns, then you may qualify for a long-term payment plan. If you owe less than $100,000, then you may qualify for a short-term plan.

What if You Can't Pay?

It's important to contact the IRS immediately if you're approved for an installment agreement, and your financial situation turns out to be worse than you thought or if you encounter an unexpected financial setback. Options are available to help you out. You might be able to reduce your monthly payment, but your options will depend on your financial situation. Expect to be asked to provide proof of your hardship to the IRS.

Partial Payment Installment Agreements (PPIAs)

A partial payment installment agreement (PPIA) allows you to make a monthly payment to the IRS that is based on what you can afford after accounting for your essential living expenses. You must have limited assets to qualify, and you can't have any outstanding returns. To request a PPIA, you must file Form 433 with Form 9465.

Form 433 is used to calculate your disposable income, which in turn determines your payments under the plan with the IRS. A partial payment plan can be set up for a longer repayment term, and the IRS might file a federal tax lien to protect its interests. You might have to provide pay stubs and bank statements to support your application, and substantiate any equity you have in owned assets. The terms of the agreement will be reviewed every two years in case you can make additional payments.

Note

The IRS might require that you sell assets to pay your tax debt rather than enter into a PPIA.

An Offer in Compromise

An offer in compromise will only be discussed after all other options have been exhausted, and you're unable to make any type of installment plan agreement. This arrangement involves negotiating with the IRS to pay less than what you owe. You'll typically need a tax professional to help represent you.

It is best to seek the advice of a federally authorized tax professional, such as an enrolled agent, if you're unable to pay your tax debt. A professional can talk to the IRS on your behalf and can help you manage the process so it's not so overwhelming. They can also help you analyze your financial situation and tax issues to help you decide which program would best suit your needs.

Key Takeaways

  • The Internal Revenue Service (IRS) offers various payment arrangements and installment agreements to help taxpayers eliminate their tax debts.
  • If you owe less than $10,000 and meet certain qualifications, an installment plan is automatically guaranteed.
  • Balances up to $50,000 may qualify for long-term repayment plans, and balances up to $100,000 may qualify for short-term repayment plans.
  • If you're having trouble making payments, you'll need to demonstrate your financial hardship to the IRS to request a temporary delay or partial payment plan.

Frequently Asked Questions

What's the smallest monthly payment I can make on an IRS installment plan?

Your minimum monthly payment will depend on how much you owe and the plan you set up. However, if you owe less than $10,000, you can stretch the repayment period to three years, or up to six years for debt up to $50,000. You can divide your balance by the number of months to figure out your minimum monthly payment. Higher balances may require more customized solutions.

What sort of proof does the IRS need to grant a temporary grace period for payment?

If you can't make any payments on your tax debt due to financial hardship, you may be able to pause payments temporarily. You can use Form 433 to document your financial situation.

Will entering into an installment agreement with the IRS affect my credit?

Not directly. An installment plan is not considered a loan, so it is not reported to the credit bureaus. However, if you fail to pay taxes to the point where the IRS has imposed a lien, you may negatively affect your success with other loan applications (such as for a car or house).

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. "Instructions for Form 9465," Pages 1-2.

  2. Internal Revenue Service. "Apply for a Payment Plan."

  3. Internal Revenue Service. "What If I Can't Pay My Installment Agreement?"

  4. Internal Revenue Service. "5.14.2 Partial Payment Installment Agreements and the Collection Statute Expiration Date (CSED)."

  5. Internal Revenue Service. "Offer in Compromise."

  6. TurboTax. "What Is the Minimum Monthly Payment for an IRS Installment Plan?"

  7. Experian. "Do Taxes Affect My Credit Score?"

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