Updated: December 10, 2024

By: Charles P. Corsello, EA|Reviewed by: Kari Brummond, EA

IRS Installment Agreements: Set Up Payments Online or With Form 9465

If you cannot pay your taxes in full, you may want to set up an installment agreement. This type of payment plan lets you make monthly payments on your tax debt until the bill is paid in full. You will incur interest and a small monthly penalty while on an installment agreement, but as long as you make your monthly payments, the IRS will not initiate any involuntary collection actions against you.

This guide outlines the different types of payment plans, how to apply, what to expect while making payments, and how to appeal if the IRS rejects your request to set up or modify an installment agreement. To get help applying for a payment plan or to talk about other options, use TaxCure to find a tax pro in your area today.

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IRS installment agreements

What Is an IRS Installment Agreement? Definition and Alternatives

An IRS installment agreement is a monthly payment plan for tax debt. The IRS offers several types of agreements with different application requirements. If you owe $50,000 or less and can pay off the balance within six years, you can usually set up an installment agreement pretty quickly and easily. However, if you owe over that threshold, need longer to pay, or have a history of defaulting on these agreements, you will need to give the IRS detailed financial information before they approve your request.

An installment agreement is the most common type of tax relief, but for an installment plan to work, you need to be able to afford the payments every month. If you don’t have any disposable income, you may want to pursue other options such as establishing yourself as non-collectible status (CNC) or applying for an offer-in-compromise (OIC). Research from the Taxpayer Advocate Service indicates that over a quarter of people who set up installment agreements on their tax debt in 2022 could have qualified for CNC or an OIC. To ensure you're setting yourself up for success, you may want to consult with a tax pro about your options.

Types of IRS Installment Agreements

To meet the diverse needs of taxpayers, the IRS offers a few different types of Installment Agreements. All of these agreements share one critical feature - in exchange for you agreeing to make monthly payments, the IRS agrees to stop collection actions against you. The differences in these plans is how you apply and the type of information you need to provide to get approved. Here is a brief overview and links to resources with more information.

Online Payment Agreement - If you owe under a certain threshold and are up to date on your filing requirements, you can apply for an installment agreement online through the IRS's website. You can use this option to set up a short-term payment agreement if you owe under $100,000 and can pay off the balance within 180 days, or if you owe under $50,000, you can set up a long-term payment plan for up to six years.
Guaranteed Installment Agreement - This installment agreement offers “guaranteed” approval as long as you meet the requirements: 1) You owe $10,000 or less in taxes, 2) You can pay off the taxes within three years or before the collection statute expiration date (CSED) whichever comes first, and 3) You're up to date on filing your tax returns.
Streamlined Installment Agreement - If your assessed balance is less than $50,000, the IRS may grant you a Streamlined Installment Agreement. Streamlined means that you don't have to provide a collection information statement. With a streamlined installment agreement, you must be able to pay off the tax debt within 72 months or by the collection statute expiration date if sooner.

Businesses that are no longer operating can get a streamlined agreement if they owe less than $25,000 in assessed taxes. Businesses that are still operating can only qualify for a streamlined installment agreement if the tax debt is exclusively related to income tax.
Non-Streamlined Agreement - If you owe over $50,000, you can apply for a non-streamlined installment agreement (NSIA). This installment agreement was named non-streamlined because in the past you used to have to submit a collection information statement. As of 2024, that's usually not required unless the taxpayer is requesting a release of a levy or their debt has been certified as seriously delinquent to the State Department. However, if you set up this type of payment plan, the IRS will most likely file a federal tax lien against you -- note that there are exceptions.

Generally, if you owe less than $250,000 and your case has not been assigned to a revenue officer, you don't have to provide a collection information statement. In contrast, if you owe over $250,000 or if a revenue officer is working your case, the IRS will generally request a collection information statement (Form 433).

With non-streamlined installment agreements, you can get longer payment terms. If needed, you can make monthly payments until the collection statute expiration date, even if it's more than six years in the future, and that means you have more time to pay with this payment plan.

Active businesses generally get up to two years to pay off their balances, CSEDs permitting.
Partial Payment Installment Agreement (PPIA) - If you cannot afford the minimum monthly payments on a regular installment agreement, you may want to apply for a PPIA. This type of IRS installment agreement allows you to make monthly payments you can afford, and when the CSED arrives, the debt expires and you don't have to pay the rest. Because you're paying less than you owe, it is more to obtain this Installment Agreement. You have to submit a lot of financial information to the IRS for the agency to consider and prove you cannot make regular monthly payments.

Those are the main types of IRS Installment Agreements. However, you may also hear about direct debit agreements and financially verified agreements. These categories overlap with the categories above. For example, any payment plan that is paid with direct debit from your bank account can be referred to as a direct debit payment. Similarly, any installment agreement that requires a financial disclosure can be referred to as a financially verified installment agreement.

What is a Direct Debit Installment Agreement?

A direct debit installment agreement (DDIA) is an installment agreement where the taxpayer makes monthly payments via direct debit. That means payments are withdrawn directly from your bank account. If your assessed balance is between $25,001 and $50,000, you must agree to pay by direct debit or provide a financial disclosure. Alternatively, you can use a payroll deduction to make automatic payments - that's where your employer withholds your payments from your paycheck and sends them to the IRS.

Generally, if you owe more than $50,000, the IRS prefers direct debit payments, but in the interest of practicality, the agency doesn't always require them. Note that if a revenue officer is assigned to your case, they may require you to set up direct debits if you have defaulted on an installment agreement in the past.

What Is a Financially Verified Installment Agreement?

A Verified Financial Installment Agreement is a type of installment agreement that requires the disclosure of financials through a collection information statement. You may need to provide financial verification if you owe over $50,000, have a history of defaulting on installment agreements, cannot afford the minimum monthly payments, or need more than six years to pay. Revenue officers may also require financial verification at this discretion.

These payment plans require more effort and generally more paperwork. You need to provide comprehensive information about your assets, liabilities, income, and expenses to the IRS. Typically, the IRS uses Form 433-F, but if you are working with a revenue officer, they may request Form 433-A for individuals or Form 433-B for businesses.

When to Request an IRS Installment Agreement

You may want to consider an Installment Agreement in the following situations:

You cannot afford to pay in full and want to spread out payments over time.
You do not qualify for a settlement through the offer-in-compromise program.
You cannot borrow money to pay your taxes, or if you have a loan option, the interest rates are higher than the IRS's interest rates.

Check out the resource link above if you want to know more about when to request an Installment Agreement, how to request it, and the type of agreement you should select.

How to Apply for an Installment Agreement

You can apply for an installment agreement online, through the mail, over the phone, or in person. Here are brief instructions on each of these options.

Apply Online - Set up an IRS online account by verifying your identity with ID.me. You need a smartphone, a photo ID, and an email address, and you may have to answer some questions about your credit report to verify your identity. This option is for taxpayers who owe under $50,000 and can pay off the balance within six years.

If you can pay within 180 days of the due date, you can set up a short-term payment plan online for tax debt up to $100,000. A short-term payment plan is basically a promise to pay within the next six months. You don't have to make monthly payments.

Apply Through the Mail - If you don’t want to use the IRS’s online tool to request a payment plan or you owe too much money to use the online tool, you can fill out and mail in IRS Form 9465 (Installment Agreement Form). This form is mainly for individuals. Businesses can use this form if they are out of business or if they only owe income tax. When you complete the form, it will indicate if you also need to file Form 433-F. For example, if you cannot afford to pay off the balance within six years, you will also need to complete the 433-F.

Apply Over the Phone - You don't have to mail in Form 9465. Instead, you can call the IRS and give them the info from this form over the phone. Then, the agency will approve the request on the phone call or let you know if you need to provide additional information.

Apply In Person - There are IRS offices in every state and multiple offices in some states. Most offices let you apply for an installment agreement in person, but you may need to make an appointment. Check with the IRS Office Locator to look at the services and options of the office closest to you.

What to Expect While You're on an Installment Agreement

While you are making payments, the IRS will not garnish your wages, seize your bank account, or take other collection actions, but in some cases, the agency may issue a tax lien, particularly if you owe over $250,000 or have a history of defaulting on payment agreements. If a lien was issued before you set up payments, the IRS may agree to release it if you set up a payment plan and make three satisfactory payments. Unfortunately, you will incur interest and a small penalty while you're on the payment plan.

The IRS allows you to make certain adjustments to your payment plan, but if the adjustments run counter to your original agreement, you may need to provide financial details. Missing a monthly payment or incurring new tax debt puts you in default of your agreement, but in both of these cases, the IRS will generally work with you (and let you stay on the payment plan) as long as you proactively address the situation. Here are more details and links to more information.

Interest Rates on Installment Agreements

When you are on an installment plan, interest and penalties continue to accrue on the balance. The interest rate updates quarterly, and it's the federal rate plus three points. The late-payment penalty is only 0.25% per month, up to 25% total.

On IRS Installment Agreements, interest compounds daily. As a result, sometimes taking out a loan, and repaying the lender can save you money compared to making payments to the IRS. If you can get a loan with a lower interest rate, you may want to consider that instead of an installment plan.

Consequences of Missing a Monthly Payment

When you sign up for an installment agreement, you agree to fulfill the terms and conditions set out by the IRS. Regardless of which type of payment plan you have, missing even one payment means defaulting on that agreement and dealing with whatever consequences may follow. The outcome of missed or late payments depends largely on what you do after missing a payment and how quickly you reach out to the IRS. Generally, there are ways you can reinstate your installment agreement if you make up the missing payment quickly.

Typically, if you miss a payment, the IRS will send you Notice CP523. This notice will tell you the past due amount, and it will give you a deadline. As long as you pay by then, your payment plan should stay active.

Incurring New Tax Debt - Rules About Multiple IRS Payment Plans

When you set up a payment plan, you agree to stay compliant with future tax obligations. But what if you get ready to file a return and realize that you can't pay? In that situation, you may wonder if you can set up two payment plans with the IRS. Strictly, the terms of your installment agreement state that the IRS can put you into default and demand payment in full if you incur a new tax debt. However, in practice, the IRS is often willing to add new tax debt to your existing payment plan. The best move is to contact the agency or a tax pro proactively before the taxes are assessed. That increases your chances of approval.

Note that an individual or a non-pass-through business can only get a single payment plan. Even if they owe taxes from multiple years, they will make payments on just one installment agreement. However, if you owe taxes on both the individual and corporate levels, you may be able to set up a separate payment plan for the two different tax debts. That is because different entities are involved. If you have a pass-through business such as a partnership or a sole proprietorship, you will typically pay those taxes as an individual.

Making Modifications to Your IRS Installment Agreement

Once you set up your payment plan, you can make many changes through the online system. Online, you can typically select a new payment date, change your payment amount, or update your banking details. You may also be able to increase the length of your payment term or add a new balance to your existing plan. However, in some cases, the IRS may require you to call and request changes and/or you may need to complete a financial statement. Sometimes, you can request changes using Form 9465.

Appealing an IRS Installment Agreement

If the IRS rejects your Installment Agreement, you can appeal. You can also appeal if the IRS terminates an existing agreement or refuses to accept your request for modifications. The resource linked above takes a look at that process.

Frequently Asked Questions About Installment Agreements

What if I can't pay taxes in full?

The IRS may allow you to set up an installment agreement. Most agreements last up to six years, but if you cannot afford to pay over that time frame, the IRS may give you up to 10 years.

How do I apply for an installment agreement?

You can apply for an installment agreement on the IRS's website, by filing Form 9465, or by calling the IRS. You can also go to an IRS office to request payments in person. If you're e-filing a tax return and you want to set up payments, you can attach Form 9465 to your return electronically, or you can ask your tax preparer to do this for you.

What if I cannot afford an installment agreement?

If you cannot afford to make payments, you may want to look into an offer in compromise. That's where you make a lump sum payment, and the IRS waives the rest of the balance due. Alternatively, if you have very limited income and assets, you may be able to get your account marked as currently non-collectible. That way, you don't have to make payments, but the IRS also won't try to collect the debt from you.

Why did the IRS reject my installment agreement?

The IRS may reject your installment agreement request if you have unfiled returns, your financial statement indicates that you can afford to pay in full, or you have a history of defaulting on payment plans. Find out why the IRs rejected your payment plan and see if you can rectify the situation. If not, reach out to a tax pro for help.

Can I change my payment plan?

You can make some changes to your payment plan online, by filing a new Form 9465, or by calling the IRS. If your change results in you needing longer to pay or paying less than the required minimum payment, the IRS may require you to fill out financial forms.

Check out the link above to see more common questions and answers about IRS Installment Agreements.