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Part of the Series Federal Tax Forms1099 Forms INT–OID
1099 Forms PATR–SA
Each year, many Americans file their tax returns and discover that they owe more income tax than they can afford to pay immediately. Additionally, many taxpayers owe back taxes and have no idea how to pay their tax debt.
Fortunately, the Internal Revenue Service (IRS) has a program that allows taxpayers to pay taxes in monthly installments instead of in a large, one-time, lump sum. If you find yourself in this position, filing Form 9465: Installment Agreement Request with the IRS will allow you to implement an installment agreement. But keep in mind that penalties and interest on the overdue balance will still accrue until you pay the taxes owed.
Taxpayers who can't pay their tax obligation can file Form 9465 to set up a monthly installment payment plan if they meet certain conditions. Any taxpayer owing no more than $10,000 will have their installment payment plan application automatically approved with the following stipulations:
If you owe more than $50,000, you cannot file electronically and need to return a completed IRS Form 433-F.
Any taxpayer owing more than $50,000 must also submit Form 433-F, Collection Information Statement along with Form 9465, something that also can't be done online.
All pages of Form 9465 are available on the IRS website.
If you owe $50,000 or less in taxes, penalties, and interest, it's also possible to avoid filing Form 9465 and complete an online payment agreement (OPA) application instead.
Taxpayers who default on their installment plans can petition for reinstatement, but they cannot ignore their previous agreement by creating a new one.
Individuals who are already making payments under an installment agreement with the IRS are not eligible to use Form 9465 and must contact the IRS at 1-800-829-1040 if they need to make arrangements for payment of additional amounts. Individuals who should also call instead of filing Form 9465 include those who are in bankruptcy and want to make an offer-in-compromise.
Whether you can use Form 9465 or not, there are actually a variety of solutions you can try If you receive an unexpected bill from the IRS.
Generally, repayments are required to be completed within 72 months or less, depending on how much you owe. The IRS does not allow taxpayers to establish installment plans for free. A one-time setup fee is also charged. The amount depends on how you pay. These are the options:
It's also $225 if you set up a payroll deduction for what you owe and you'll need to fill out IRS Form 2159, Payroll Deduction Agreement, too.
The IRS waives the $31 online setup fee for low-income individuals who make direct debit payments. Low-income taxpayers also pay a reduced fee—$43 instead of $130—if they don't make payments via direct debit or the fee may be waived entirely.
If the IRS initially decides you don't meet the qualifications for the reduced fee you can ask it to reconsider by filing Form 13844, Application for Reduced User Fee for Installment Agreements.
There is an $89 fee to modify or terminate the installment agreement ($43 for low-income taxpayers). In addition, interest and penalties are applied to the unpaid balance until it is paid off.
The IRS charges a daily compounding interest rate equal to the short-term federal funds rate plus 3%, calculated on a quarterly basis. In addition to the interest charged, the IRS will also assess a failure-to-pay penalty of 0.5% on the unpaid balance each month or part of a month up to a maximum of 25%. For taxpayers who file on time and are on an installment plan, the penalty decreases to 0.25% for each month the installment plan is in effect.
The total penalties and interest can easily add up to 9% to 12% per year, and taxpayers must be prepared to pay this amount in addition to their principal balance. For this reason, taxpayers are strongly encouraged to make more than the minimum monthly payment whenever possible.
Fred files his 2022 taxes in April of 2023 and owes a total of $7,000. He submits Form 9465 with his return and establishes a 36-month installment payment plan. If the federal funds rate is 3%, the IRS will charge Fred a 6% interest rate on the outstanding balance.
If the failure-to-file penalty is 0.5%, then he will also pay another 6% annually in penalties until the balance is paid off—12% of $7,000 is $840, although this amount will decrease on a monthly basis as the principal is repaid.
Taxpayers have several methods of payment available. They can send personal checks, cashier's checks, or money orders. In addition, they can debit money directly from their bank accounts or pay by credit card. The Electronic Federal Tax Payment System (EFTPS) may also be used (this requires separate registration). However, a key factor to remember is that the payment absolutely, positively must be made by the date each month that is specified in the agreement.
Payments can be made between the first and 28th of each month. If the agreement stipulates that the taxpayer must make the payment by the 15th of each month and payment is not made, then the agreement is immediately considered to be in default. Therefore, those who pay by check or money order are advised to mail in their payments at least seven to 10 business days before the due date to ensure timely receipt.
However, the IRS has now upgraded its website to allow taxpayers to modify their installment agreements online. Individuals can now revise their payment dates and even the terms of their agreement, including the method of payment and other details. Authorized representatives can also access the site and do this on behalf of their clients.
The advantage of an installment plan is obvious: It gives taxpayers more time to pay off their federal taxes in an orderly manner. As long as the terms of the agreement are honored and the taxpayer is able to make their payments, any collection efforts by the IRS or private collection agencies will cease.
Eligible individuals can also get a six-month extension for filing their tax returns and possibly paying their tax bills if they are under certain financial hardships.
For those looking to set up an installment payment plan for back taxes, you can apply online through the IRS Online Payment Agreement tool or apply by phone or by mail by submitting Form 9465, Installment Agreement Request.
A short-term payment plan is typically free of charge. For a long-term payment plan using direct debit, there is a $31 fee for online set-up or $107 to set it up by phone or in-person. For other forms of payment, the set-up fee is $130 online or $225 by phone or in-person. These costs are somewhat reduced for low-income earners. Note that any accrued penalties are also owed.
Yes, but only if the amount you owe is less than $50,000.
Form 433-F details how much interest and penalties you owe, whole Form 9465 allows you to establish an installment plan to pay back those fees. Taxpayers who owe more than $50,000 must submit a 433-F along with Form 9465.
Taxpayers with outstanding tax bills don't have to panic about how to pay their taxes. The installment-agreement application process is relatively quick and painless, although penalties and interest can add up over time. Individuals who are unable to pay their federal tax bill and do not make arrangements with the IRS may be subject to the IRS collection process and more penalties and interest than if they had made arrangements upfront to make installment payments.
You can access Form 9465 from the IRS website or by calling 1-800-829-1040.
