Top 7 IRS Payment Plan Options You Should Know

Dealing with tax debt can be overwhelming, and figuring out IRS payment plan options can be challenging, but I’ve got you covered!

I’ve specialized in tax law and business advisory for over 15 years, and I’ve helped individuals and entrepreneurs navigate resolving tax debt problems, even when they couldn’t afford to pay in full.

Many people face this challenge, and there are solutions available to help you manage it effectively. Here’s a breakdown of what you can do if you find yourself unable to pay your IRS tax debt:

Before You Get Started:

Timeline: From the tax assessment date, the IRS typically has 10 years to collect tax debt from you. The Collection Statute Expiration Date (CSED) marks the day your tax debt is no longer collectible.

State Taxes: If you also owe state taxes, it’s important to know that each state operates differently. However, keep in mind that similar payment plan options may also be available at the state level.

IRS Payment Plan Options:

1. Full Pay in 180 days:
   • Ideal if you’re able to pay your balance in full within this time period.
   • Simple and straight to the point, it costs $0 to set up this payment plan, however, this can only be set up for personal tax accounts.
2. Streamlined Installment Agreement:
   • Ideal for individuals and out-of-business sole-proprietors owing up to $50,000 in back taxes. Also ideal for active businesses (with income tax debt only) and closed businesses with up to $25,000 in IRS tax debt.
   • This agreement can last up to 72 months or through the CSED, whichever is earlier.
3. Tiered Payment Plan:
   • Ideal if you expect your financial situation to improve, however, your ability to qualify for this will be dependent upon your total tax debt and CSED.  
   • With a tiered payment plan, you can start the first year with a lower payment and set your payment plan to increase incrementally over the next two years. By the third year, you’ll be in a steady payment plan until you’ve paid the tax debt in full. 
4. Payment Plan with a One-Year Grace Period:
   • Ideal if your expenses exceed what the IRS deems “allowable”, and you need some time to adjust your finances to make higher tax payments easier to manage.
   • The one-year grace period allows for lower payments in the first year, before higher payments are required in the second year.
5. Partial Payment Installment Agreement (PPIA):
   • Ideal if you’re able to prove that you can’t pay the total balance due before the CSED. You will need to provide an accurate financial analysis that shows your monthly cash flow (income and expenses). With this analysis, you can request a lower monthly payment, even if it means the full debt won’t be paid off by the CSED.
6. Hardship Status (Currently Not Collectible – CNC):
   • Ideal if you’re able to prove that your “allowable”/necessary living expenses exceed your income, making it impossible to pay the IRS without causing financial hardship.
   • The IRS recognizes that this is a reality for many people, so they will generally grant this request and stop all collection action, e.g. bank levies and wage garnishments. However, tax liens will be filed, and the IRS will typically request an updated review of your financials every two years, or sooner, if your income increases.
7. Offer in Compromise (OIC):
   • Generally, ideal if you qualify for a hardship or PPIA and you are able to maintain compliance for the next 5+ years, as your offer amount is based on your income, expenses, assets, and liabilities.  
   • Allows you to settle your debt for less than the total amount owed if paying the full amount would cause financial hardship.

Securing Your Payment Plan:

Options 1 and 2 above do not require the disclosure of your financials, so you can set those up online following the steps below.

Options 3 and 4 may or may not require the disclosure of your financials, using Form 433A or 433F, depending on your situation. You can also use Form 433H, which consolidates the financial disclosure and payment plan request on one form.

Options 5 and 6 will require the disclosure of your financials, using Form 433A and/or 433B, or 433F. You can also use Form 433H, which consolidates the financial disclosure and payment plan request on one form when attempting to secure a PPIA.

Option 7 requires the most in-depth financial disclosure, using Form(s) 433A (OIC) and/or 433B (OIC) AND Form 656. I highly recommend hiring an Enrolled Agent who specializes in tax resolution to help you with this option.

Setting Up Payments:

The instructions below are primarily for personal tax accounts. If you are a business owner, I highly recommend seeking expert tax help.

1. Online Payments and Payment Plans: (Recommended, when possible)
   • Visit https://www.irs.gov/your-account to create or sign into your online account.
   • Once logged in, from the top menu, select “Payment”, then “Payment Options.” From there you can choose to make a one-time payment, create a payment plan, or check to see if you are eligible for an OIC.
   • Follow the prompts to move forward.
2. One-Time Online Payments: (without creating your online account)
   • Visit https://www.irs.gov/payments.
   • Choose your method of payment (bank account or credit/debit card).
   • Follow the prompts to pay.
3. By Phone:
   • Contact the relevant collections department to set up the payment plan. Prepare to patiently wait on hold for a while.
   • Personal Tax Accounts: 1.800.829.7650
   • Business Tax Accounts: 1.800.829.3903
4. In Person:
   • Visit your local tax office or low income taxpayer clinic.
   • Work with the staff to set up an affordable payment plan. 

Conclusion:

Remember, you have options when dealing with IRS and state tax debt, and your path to peace of mind and financial control starts with understanding and choosing the right solution for your needs. Whether you opt for a structured payment plan, hardship status, or an offer in compromise, each route has its pros and cons depending on your goals and circumstances. Please Note: The information provided is for general education purposes only, and not offered as professional advice for your specific situation.

As always, if this becomes too burdensome, I encourage you to find an Enrolled Agent who specializes in tax resolution and can help take the load off. If you need further guidance or would like to work with my team and I to fix your tax problems, schedule a free consultation so we can discuss your situation.

I’d love to hear from you. Let me know in the comments below if this was helpful and which payment plan you found to be the most suitable for your situation.

Talk soon!