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 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.
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.
If you can get a loan with a lower interest rate, you may want to consider that instead of an installment plan. 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 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).
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 That means payments are withdrawn directly from your bank account. In some cases, this type of payment method is one of two payment options required with a 60-month plan to have a tax lien withdrawn. Furthermore, direct debit or a payroll deduction used to be required when you owe more than $50,000. However, in practical settings and because of the Covid-19 relief offered by the IRS, the IRS may not require financial disclosure for tax balances over $50,000 as long as the taxpayer can pay off the taxes before the collection statute expiration date (CSED) on collections for a particular tax period. If the taxpayer cannot pay it off by the CSED, then the IRS may require financial disclosure.
If your assessed balance is less than $50,000, the IRS may grant you a Streamlined Installment Agreement. In some cases, the IRS requires financial disclosure if the taxpayer has a balance that’s over $50,000. However, with recent Covid-19 induced changes, if you owe over $250,000, the IRS will generally request a collection information statement (form 433). Individuals can get long payment terms (CSEDs permitting) and active businesses generally get up to two years to pay off their balances, CSEDs permitting. The IRS is currently allowing for individuals with up to $250,000 owed for the 2019 tax year only, the ability to set up an installment agreement with no lien filed (otherwise a lien determination is generally made).
Financially Verified Installment Agreement (Non-Streamlined)
Verified Financial Installment Agreements are for individuals or businesses who owe too much tax to qualify for a streamlined agreement. 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 owe greater than $250,000 or for those who cannot make the minimum monthly payment with an installment agreement. There is more effort and generally 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. Details on who needs to use this form, when it is necessary, fees, and instructions on completing the document.
Check out common questions and answers about IRS Installment Agreements.