IRS Direct Debit Installment Agreement Benefits & Details

Simply put, an IRS Direct Debit Installment Agreement (DDIA) is when you make payments to the IRS directly from your bank account. You can set up a direct debit payment method with multiple Installment Agreements, and in some cases, the IRS may require you to set up automatic payments. This guide explains how to set up direct debit installment agreements, and then, it outlines the benefits and drawbacks of this option.

Key takeaways

Direct debit installment agreement - setting up automatic payments from your bank account for an IRS installment agreement.
Required for tax debts of $25,000 or higher if you don't want to file a collection information statement.
Choose any date from the 1st to the 28th.
Set up online or with Form 9465 or 433-D.
Request changes online or by calling the IRS.

direct debit installment agreement

What Is a Direct Debit Installment Agreement?

A direct debit installment agreement is any IRS payment plan where you make monthly payments through direct debits from your bank account. You provide the IRS with your routing and account number, and they withdrawl the monthly payment from your bank account on the agreed upon payment date.

Types of Installment Agreements That Allow Direct Debit Payments

You can set up direct debit payments on the following types of installment agreements. Follow the links to find out more about each of these payment options:

Guaranteed - For taxpayers who owe $10,000 or less, can pay off the balance within three years, and don't have a history of defaulting on payment agreements.
Streamlined - For taxpayers who owe $50,000 or less. The IRS requires direct debit if you owe $25,000 or more.
Non-streamlined - For taxpayers who owe over $50,000. Direct debit payments are optional.
Verified Financial Installment Agreements - Includes all installment agreements that require a financial disclosure. Direct debit is encouraged but not required.
Partial Payment Installment Agreement - For taxpayers who cannot afford the minimum payment on an installment agreement. Direct debit is not required.

How to Set Up Direct Debit Payments

You can set up a direct debit online with the IRS’s Online Payment Agreement application. You can also use Form 9465 (Installment Agreement Request), just include your routing and account number in Section 13 of that form.

Alternatively, you can use Form 433-D to authorize direct debits. The IRS may send you this form after they approve your request for an installment agreement. This form outlines the criteria for staying compliant with the installment agreement, and it also lets you set up direct debits from your bank account.

When you set up direct debit, you can choose any date from the 1st to the 28th. The IRS will initiate payment from your account on this date every month. The payment may come out of your bank account that day or within a day or two depending on your bank's processing speeds. The payment will never be taken out before the due date.

Direct Debit Installment Agreement Benefits

Direct Debit Installment Agreements offer more pros than cons. In most cases, paying by direct debit helps you avoid defaulting, missing payments or incurring penalties. Here are a few of the other benefits

Low cost online - A Direct Debit Installment Agreement costs $22 if set up through the IRS Online Payment Agreement. Otherwise, the setup fee is $107 (if not low income).
Reduced cost on phone or mail - If you apply through the mail or over the phone, the fee is just $69 if you set up direct debit and $178 if you don't.
Stay on top of payments - Direct debit helps you avoid late payments.
No mailing payments - You are not required to mail a check or pay for postage each month. You also don’t have to worry about lost mail or misplaced payments.
No credit card fees - You avoid fees associated with credit card payments.
Reduced risk of tax liens - Generally, when you agree to direct debit, and you owe less than $25,000, the IRS won't file a federal tax lien against you.
Helpful for businesses - If your business owes less than $25,000, you can qualify for the Streamlined Installment Agreement -- you only need to set up direct debit if you owe $10,000 or more.

IRS Direct Debit Installment Agreement Drawbacks

There can be a few drawbacks too. Namely, if you don’t have the funds in your account, you risk incurring overdraft or insufficient funds fees.

How to Make Changes to Your Direct Debit Agreement

If you want to change your bank account details or your withdrawal date, you can do so online. You may also be able to make other changes to your installment agreement such as changing the amount of your monthly payment. However, if your requested changes mean that you will not be able to pay off the balance within six years or by the collection expiration date if sooner, you may need to call the IRS or file a 433 form.

Payroll Deductions - an Alternative to Direct Debit Payments

If you don't have a bank account, you can get around the requirement for direct debit by setting up an automatic payroll deduction. This requires you to file Form 2159. However, you should use this as a last resort. First, when you take this route, you reveal to your employer that you're behind on your taxes, and that can hurt your reputation. Additionally, many payroll departments aren't used to this form. As a result, they often confuse it with a non-voluntary garnishment.

This can be problematic if you want to pause the payments. With a payroll deduction agreement, you can voluntarily stop the payments at any time, and then, the IRS can pursue collection actions against you. A garnishment, in contrast, is not voluntary, and your payroll manager can't stop the payments based on your instructions.

In most cases, if you are serious about paying off your taxes, payroll deductions and direct debit offer more benefits than any other type of payment method for an installment plan.

Disclaimer: The content on this website is for educational purposes only and does not serve as legal or tax advice. For specific information regarding your tax situation, connect with a licensed tax professional or tax attorney.