How to Change an IRS Payment Plan

Need to make changes to your IRS installment agreement? The process may be easier than you think. You can change your payment amount, date, banking details, and even the length of your payment plan online. However, if your changes break the original terms of your agreement, you may need to call the IRS or complete additional paperwork. 

To help you out, this post outlines the types of modifications you can make online. Then, it explains when you need to file additional paperwork and when you may want to consider switching to a different type of payment arrangement. 

Signs You Need to Modify Your Installment Agreement

First, you need to decide if changes are necessary. Here are some signs that it's time to ask the IRS for a modification:

• Financial hardship - Your income has been lowered or your necessary expenses have increased, and you're worried that you will not be able to continue making your usual payments. 
• New tax balance - You filed a new tax return that shows a balance due that you cannot afford to pay. Be proactive about dealing with new balances. They can usually be rolled into an existing payment plan, but not always.
• Missed payments - If you're missing payments, you need to make changes. Generally, if you miss one payment, the IRS will give you a month to catch up, but if not, they will put your account into default and demand payment in full.

If you're not sure of the best path forward, consider contacting a tax professional. They will be able to talk with you about the best option for your situation, and often, that may not even be a payment plan.

Note that if you've recently received a windfall or your income has increased, you may want to increase your monthly payments or pay off the balance. Doing so will help you avoid interest and penalties. You can also do this online.

How to Change Your Payment Plan Using IRS Online Tools

To modify your installment agreement, call the IRS at (800) 829-1040 or log into your IRS online account to change your agreement. You can make the following changes online or over the phone:

• Payment date - If you have automatic debits, you can choose any payment date between the first and the 28th.
• Monthly payment amount - You can increase or decrease your payment as long as your monthly payment is enough to pay off the balance in full by the end of the payment plan term (usually six years or by the collection expiration date if sooner).
• Direct debits - You can always set up direct debits if you do not currently have automatic payments. If you currently have direct debit payments, you can remove your bank account details and opt to make payments manually as long as you owe $25,000 or less. If you owe more than that, you will need to provide additional financial details if you want to remove auto payments from your account.
• Bank account details - If you have direct debit payments, you can change your bank account details at any time, but ideally, you should do so a few days before the scheduled payment to ensure that it hasn't started processing.
• New tax liability - Technically, incurring new tax debt puts you in default of your installment agreement, but generally, as long as you can pay off the existing balance and the new balance within the usual time frame, the IRS will let you add new tax debt to your payment agreement. Note that you may need to file the return and wait for the IRS to send a notice before you can add the new balance to your installment agreement.
• Reinstatement - If the IRS puts your payment plan into default, they will send you notice CP523, which should give you instructions on how to reinstate your payment plan online. 

There are a few limitations. If your suggested payments don't meet the minimum requirements for an IRS-streamlined installment agreement, you will need to complete additional paperwork as outlined in the following section.

Modification Requests That Don’t Meet Minimum Requirements

You can only make changes online if your modifications still meet the basic requirements of your installment agreement. If not, the IRS will require you to complete a financial verification disclosure—this is similar to the process of applying for a non-streamlined installment agreement. 

Typically, the agency requires Form 433-F for individuals and Form 433-B for businesses, but in some cases, the IRS may request Form 433-A from individuals. 

Here are the changes that will most likely require additional paperwork:

• Monthly payment too low - Your monthly payment must be at least $25 and enough to pay off the tax debt within six years or by the collection statute expiration date (whichever is sooner).
• Total balance over $50,000 - If you incur a new tax balance and it puts the total of assessed tax, interest, and penalties over $50,000, you will not be able to complete your changes online. Instead, you will need to call the IRS and request the changes over the phone. You will also need to complete a collection information statement (form 433).
• Removing direct debit on balances over $25,000 - If you owe over $25,000, the IRS requires a collection information statement or automatic payments. Most people set up direct debits from their bank accounts, but you can also have your employer withhold the payments from your paycheck. If you remove your direct debit account, the IRS will generally require additional paperwork if your balance is over $25,000.

How to Complete Collection Information Statements

The 433 series collection information statements are relatively straightforward, but you must take the time to complete them fully. They require all of your income (wages, business, rental income, pensions, etc), the equity in your assets (asset, amount owed, and fair market value), your debts, and your monthly expenses. 

When it comes to expenses, the IRS doesn't use subjective opinions. Instead, the agency has a set of financial standards that apply to all taxpayers in the collection system. There are national standards for food, clothing, car payments, and out-of-pocket medical expenses. Then, there are local standards for housing, utilities, and vehicle operational costs. 

The IRS uses this information to ensure that you're paying the most possible toward your tax debt. If the IRS sees that you can afford to liquidate assets or cut expenses, the agency is likely to require larger payments. In contrast, if these forms show that you can no longer afford a traditional payment plan, you may want to look into a new arrangement.

What if the IRS Rejects Your Modification Requests

If the IRS rejects your requests for changes, they will send you a notice which generally gives you 30 days to appeal. Contact the IRS by the deadline to enter your appeal. During the appeal, you will be able to make new arguments to support your justification for the modification. You will also be able to talk about alternative payment arrangements that work better for your situation.

Options When Your Payment Plan No Longer Works

A significant portion of taxpayers who set up monthly installment agreements were likely to qualify for an offer in compromise or currently not collectible status. Even if you didn't qualify for those programs right away, you may qualify for them now that you have incurred new tax debt or suffered a reduced ability to make payments. 

Currently Not Collectible Status

If you cannot afford to pay at least $25 per month and you don't have any assets that you could liquidate to pay your taxes, the IRS may be willing to mark your account as currently not collectible (CNC). When you're on CNC status, the IRS will not try to forcibly collect the tax debt through garnishment or seizure, but they will still file tax liens against you. 

You will have to start making payments again if your tax return shows that your income has improved or if the IRS requests a collection information statement that shows an improvement in your finances. Take a look at these two examples to see how this program works.

Scenario one: You lose your job while on an IRS installment agreement. You contact the IRS to ask about currently not collectible status, and they say that since your only income is unemployment you don't have to complete an application. They mark your account as CNC. Interest and penalties continue to accrue on your tax debt. One year later when you get a job, you contact the IRS and resume payments. 

Scenario two: You retire from your primary job while on an IRS installment agreement. Your monthly retirement checks plus some income from a part-time job are less than your income, and you can no longer afford to make payments. You apply for CNC status. Your financial situation does not improve over several years, and your tax debt expires on the collection expiration date. You no longer owe the IRS.

Offer in Compromise

An offer in compromise is when you settle your tax debt for less than you owe. However, you must pay the settlement in a lump sum, and you must complete extensive financial paperwork to show the IRS that you're paying the most you can afford to pay. 

To apply, use Form 656-B which contains versions for 433-A and 433-B designed specifically for offers in compromise. If you get accepted, you must pay the lump sum offer within five months. Alternatively, you can make payments on the offer for up to 24 months, but you will end up paying a slightly higher offer in that situation than if you pay all at once. Here are two examples.

Scenario one: You lost your job and can no longer afford your installment agreement. However, you received a severance check from your employer. You apply for an OIC and show that you have no other income or assets to cover the tax bill. You offer the amount you received in your severance check. The IRS agrees and settles your taxes. You no longer owe the IRS.

Scenario two: You have been making small monthly payments on an installment agreement. Then, on the advice of your tax attorney, you buy a car that costs less than the IRS's standard allowance for car payments and due to those payments, you no longer have disposable income for your installment agreement. You complete a financial information statement showing that you have no available equity in your assets but some cash in your savings account. You offer all of the cash, and the IRS accepts. You no longer have to make monthly payments.

Partial Payment Installment Agreement

A partial payment installment agreement (PPIA) may come into play if you can afford to make small monthly payments, but you cannot come up with a lump sum for an offer in compromise. With a PPIA, you make the highest monthly payments you can afford based on your collection information statement. Then, when the debt expires, the IRS writes off the remaining amount. 

However, there is one critical element to consider—these payment agreements are not set in stone. If your finances improve, you may have to switch back to a traditional installment agreement. Take a look at these two examples.

Scenario one: Your hours get cut at work. You request lower monthly payments, but your payments aren't enough to pay off the tax debt by the expiration date. You file a collection information statement and the IRS puts you on a PPIA. A year later, you get a new job, and after you file a tax return showing your increased income, the IRS contacts you and requires you to make higher monthly payments. 

Scenario two: Your hours get cut at work. Again you request reduced payments that are not enough to pay off the debt by the expiration date so the IRS approves a PPIA. Your financial situation stays the same and you make the monthly payment until the collection expiration date. On that date, the remaining balance expires, and you no longer have to make payments. 

Transitioning From Short to Long-Term Payment Plans

The IRS gives individual taxpayers up to 180 days to pay their taxes if they request a short-term payment plan. If you set up a short payment plan but realize that you need more time, simply go online or call the IRS and request a longer payment plan. 

If you owe less than $10,000 and can pay off the balance within three years, you will automatically get accepted for a guaranteed payment plan as long as you don't have a history of default. Otherwise, you can take up to six years to pay off up to $50,000 in tax, interest, and penalties. If you owe more or need longer to pay, you cannot apply online. You need to call the IRS or file Form 9465.

Scenario: You owe $10,000 when you file your individual tax return in April. You set up a short-term payment plan to pay off the full balance within 180 days. You are planning to make the payment with your annual bonus in September. However, in September, you realize you need to buy a new furnace. You decide that you want to spread out your tax bill over a longer time period. So, you sign into the online system and request a long-term installment agreement. 

Fees for Installment Agreement Changes

The fee to modify your installment agreement through the online system is $10. However, if you need to call the IRS or make modifications another way, the fee is $89. It is just $43 if you qualify as a low-income taxpayer. 

Make Your Installment Agreement Work for You

Sometimes, making changes to your agreement is simple. You sign in online, enter the requested changes, and enjoy your new payment plan. In other cases, the process can be a lot more complicated - especially if you owe a new balance, can't afford the minimum payment, or need longer to pay.

To ensure you get a payment plan that works for your situation, contact a tax professional today. TaxCure is a curated directory of tax professionals from around the country who focus on tax resolution. Don't get ripped off working with a big tax relief firm. Use TaxCure to find a qualified local professional today.