IRS Installment Agreements: Form 9465 & More
An IRS Installment Agreement (IA) is one type of payment plan. With this type of plan, a taxpayer must repay the taxes owed (plus interest and penalties) over a series of regular monthly payments. Most Installment Agreements must be completed within seven years or by the Collection Statute Expiration Date (CSED) for each tax period owed. That’s the day the IRS can no longer collect.
You can apply for Installment Agreements online (if you meet the requirements to use the Online Payment Application) or by using Form 9465. Alternatively, you can have a licensed tax professional negotiate one on your behalf over the phone with the IRS.
If you cannot afford to pay your taxes in full, an Installment Agreement may be the best option. This is the most popular option for people who owe back taxes.
However, 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.
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, but the late-payment penalty is only 0.25% per month up to 25% total.
On IRS Installment Agreements, interest compounds daily, and the effective annual rate can be large. 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.
If taking out a loan is not an option, here’s a look at the main types of Installment Agreements for people with IRS taxes owed.
It is the easiest of the installment agreements to obtain. This installment agreement is “guaranteed” as long as you meet the requirements set forth by the IRS. You must owe $10,000 or less in taxes, and you must pay off the taxes within three years or before the collection statute expiration date (CSED) whichever comes first.
A direct debit installment agreement (DDIA) is just 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, this type of payment method is one of two payment options required to have a tax lien withdrawn when you set up an installment agreement. You can use direct debit or a payroll deduction.
In the past, payment with direct debit or a payroll deduction used to be required when you owed more than $50,000. However, in practical settings and because of the Covid-19 relief offered by the IRS, the IRS does not require taxpayers to set up direct debits on installment agreements for tax debts over $50,000. However, the agency will file a tax lien against you. That said, 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.
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.
Businesses that are no longer operating can get a streamlined agreement if they owe less than $25,000 in assessed taxes. For businesses that are still operating, they can only qualify for a streamlined installment agreement if the tax debt is exclusively related to income tax.
If you owe under $250,000 in assessed taxes, you can apply for a non-streamlined installment agreement. This installment agreement was named non-streamlined because in the past you used to have to submit a collection information statement. As of 2023, that's usually not required unless the taxpayer is requesting a release of a levy or their debt has has been certified as serious delinquent. However, 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 a non-streamline installment agreement, individuals can get longer payment terms. They can make monthly payments until the collection statute expiration date, and if that's more than six years in the future, 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.
Verified Financial Installment Agreements are for individuals or businesses who owe too much tax to qualify for a streamlined agreement (individuals using owing $250,000 or more). In other words, this type of installment agreement requires the disclosure of financials through a collection information statement (form 433). It also may apply to individuals who cannot make the minimum monthly payment with an installment agreement. There is more effort and generally more paperwork involved with this type of agreement. You need to provide comprehensive information about your assets, liabilities, income, and expenses to the IRS.
If you cannot afford the 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. Since you are paying less than what the IRS wants on a regular installment agreement, you end up paying less than you owe. As a result, it is more difficult for the taxpayer 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.
If the IRS rejects your Installment Agreement, you can appeal. You can also appeal if the IRS terminates an existing agreement. Here’s a look at that process.
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 use 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. Details on who needs to use this form, when it is necessary, fees, and instructions on completing the document.
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. However, if you owe taxes on both the individual and corporate level, 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.
Check out common questions and answers about IRS Installment Agreements.