Published: July 5, 2024

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

How to Set Up Payments for Your IRS Tax Debt Online

Most people get stressed out when they think about dealing with the IRS but setting up an online payment agreement is fairly stress-free and easy to do. To request a payment plan for your back taxes online, go to the IRS's website, select an individual or business plan, and then follow the prompts. Keep reading for more details, application criteria, and what to do if you don't qualify for an online payment plan.

What Is an Online Payment Agreement?

An online payment agreement is when you apply to pay your back taxes in monthly installments using the IRS website. If you owe $100,000 or less, you can request a short-term payment plan which gives you 180 days to pay. If you owe $50,000 or less, you can request a long-term installment agreement, which gives you up to six years to pay off the balance.

The application requests details about how much you owe and your desired monthly payment. Generally, if you owe over $25,000, you will be required to set up direct debits for your monthly payments, so have your bank account details ready.

By setting up a payment plan, you avoid unwanted collection actions such as wage garnishments or levies, and you also reduce the penalties hitting your account. If the IRS hasn't issued a federal tax lien yet, you may be able to avoid that as well, but if there is already a lien in place, the IRS may not remove it until you complete the payment plan.

Eligibility Requirements for Online Payment Agreements

Individuals, including sole proprietors and freelancers, can apply for a payment plan online if they meet the following criteria:

Owe $100,000 or less and can pay off the balance in 180 days or less.
Owe $50,000 or less and can pay off the balance in 72 months (six years or less).
Up to date on filing federal tax returns.

Businesses can apply for installment agreements online if they owe $25,000 or less. All of these application thresholds include taxes, interest, and penalties.

How to Apply for an Online Payment Agreement

To apply for an installment agreement online, go to the IRS's website, and select apply/revise individual or business payment plan. Then, sign into your IRS account using ID.me and follow the prompts to complete the application. The system will show how much you owe, but if you're applying for a payment plan for the current tax year, you will have to enter how much you owe unless the IRS has already issued a bill.

When you set up the plan, you get to choose how you make your payments. Direct debits come automatically out of your bank account, and you can choose your withdrawal on any day from the 1st to the 28th. If you like, you can request a payroll debit, which is when the IRS sends Form 2159 to your employer, and they withhold the payment from your payment and send it to the IRS. Finally, you can opt to manually make your payments online or by mailing a check or money order.

Pros and Cons of Different Payment Methods

If you owe over $25,000 or have recently defaulted on a payment plan, the IRS requires you to set up direct debits or payroll deductions. To get past this requirement, you must complete a financial disclosure like Form 433-F. Direct debits are an easy way to stay on top of your payments, but if your income is inconsistent, you may not want to agree to have your payments withdrawn on the same date every day.

Payroll deductions are convenient because the payment just comes directly out of your paycheck. But if you take that route, your employer will find out that you have IRS debt which may be embarrassing to some people, and your employer may be able to charge a small fee in exchange for taking care of the payroll deduction.

Manual payments can be the easiest option for people with variable income streams, and you can pay online or through the mail. The drawback is that you have to remember to make the payment every month.

Terms of Online Payment Agreements

Whether you set up a payment agreement online or any other way, you agree to the following terms. If you use the online payment application, you can agree to the terms online, but if you apply over the phone or through the mail, the IRS will typically mail you Form 433-D, which you use to agree to the payment terms.

If you don't keep up with your side of the agreement, the IRS will put your installment agreement into default:

Make payments on time and in full as outlined in your agreement.
Provide updated financial information if requested by the IRS.
Allow the IRS to modify or terminate your agreement if your financial situation changes.
File all federal tax returns on time.
Pay all federal taxes on time.
Agree to let the IRS withdraw a user fee with your first payment - can be waived if you are low-income and set up direct debit payments.

While you make payments, interest will continue to accrue on your account. The IRS will also still assess the failure-to-pay penalty, but it will drop to 0.25% per month. If the IRS puts your agreement into default, the agency has the right to demand full payment of your tax debt, and if you don't pay, the IRS will start involuntary collection actions.

How to Stay on Top of Your Installment Agreement

So, how do you avoid going into default? To stay on top of your payment plan, keep these tips in mind:

Schedule your direct debit on the day or day after you get paid to make sure that you have money in your account.
Set reminders to make manual payments so that you don't forget.
Mail payments about a week in advance to make sure they reach the IRS on time.
Use the IRS online account to keep tabs on your balance.
Take steps to avoid getting into new tax debt - increase your withholding if you have an employer and/or make larger quarterly payments if you're self-employed.

Proactively reach out to the IRS if you can't afford to make a monthly payment.

Although the IRS can terminate your installment agreement if you miss a monthly payment, the agency usually gives you 30 days to make the payment. If you can no longer afford your monthly payments, reach out to the IRS to see if you can modify your payments. You can request modification online through the same website that you used to set up the payments.

Alternatives to Online Installment Agreements

If you don't qualify to set up payments online, you can apply using Form 9465. You can also call the IRS using the info on this form to request a payment plan over the phone. If you owe over a certain threshold or if a revenue agent has been assigned to your account, you may need to complete a financial disclosure.

Can't afford the minimum monthly payments? Worried that you won't be able to keep up with the monthly payments? Then, consider the following alternatives.

Offer in compromise (OIC) - You make a lump sum payment or up to 24 monthly payments to settle your tax debt for less than you owe, but first, you must prove to the IRS that the payment you're offering is the most you can reasonably afford to pay.
Partial payment installment agreement (PPIA) - You make monthly payments just as if you are on a regular installment agreement, but when the tax debt expires, the IRS writes off the remaining amount. You must prove that you are making the biggest payments that you can afford, and if the IRS finds out that your financial situation has improved, the agency can require you to make larger payments or switch to a regular installment agreement.
Currently not collectible (CNC) - You don't have to pay anything, and the IRS stops collection actions until your financial situation improves. To qualify, you must prove that you cannot afford to make payments, and if your situation doesn't improve before the debt expires, you won't have to repay any of it.
Bankruptcy - You can typically discharge income taxes that are at least three years through bankruptcy, and even if you cannot discharge the taxes, the IRS must stop collection actions such as garnishments and liens while the stay is in place for the bankruptcy case. Note that you may need to make payments depending on what type of bankruptcy you file and not all taxes can be discharged.

In lieu of the above options, some people opt to put their tax debt on a credit card or take out a loan. If you can get a low-interest loan, that may be better than the above options. You should consider credit cards very cautiously as they tend to have very high interest rates, and if that's your only option, you may qualify for a PPIA, OIC, or CNC status.

Unfortunately, the default rate on installment agreements is relatively high, and in many cases, people who set up payment plans and default would have been better off requesting an offer in compromise. If you're not sure of the best option, you should consult with a tax pro.

FAQs About IRS Online Payment Agreements

Here are some FAQs about online payment agreements. If you have general questions about IRS payment plans, check out the FAQ page on installment agreements.

What is the website to set up online IRS payments?

To access the online payment agreement, application, go to the following website: https://www.irs.gov/payments/online-payment-agreement-application.

You can also search for www.irs.gov.opa, www.irs/opa.gov, or www.irs.opa. These short URLs don't lead to the IRS website, but if you search them in your browser, you will see the correct website in the results.

How much does it cost to set up payments online?

The process is free if you can pay in full within 180 days. It costs $31 to set up a payment plan online if you agree to direct debits, and it costs $130 if you don't set up direct debits. Qualifying low-income wage earners can get these fees waived or reduced to $43 respectively.

Who qualifies to set up free online payments?

If your income is less than 250% of the poverty level for your household size, you can set up an online payment agreement for free, but you must also agree to direct debit withdrawals for your monthly payments.

How do I make changes to my online payment plan?

To request modifications, sign into your IRS account online. Then, select modify/revise and proceed with the desired changes. You can change the amount of your payment, the date of the withdrawal, or a few other elements.

What do I need to set up direct debit payments online?

You just need your account and routing number. You can enter these details in the online application.

Will the IRS approve my online payment application?

Typically, the IRS approves most requests for payment plans as long as you have filed all of your returns and haven't recently defaulted on an installment agreement. However, approval is guaranteed if you are an individual who owes $10,000 or less in assessed tax and can pay off the balance in three years.

Note that if the collection expiration date is less than three years away, you must be able to pay off the debt by that date to qualify. Additionally, because the threshold applies to assessed tax, you may be able to qualify if penalties and interest have put you over the $10,000 mark.

Get Help With Online Payment Agreements

Ready to put your tax debt behind you? Want help setting up payments? Prefer to talk about other options? Then, use TaxCure to find a tax professional today. TaxCure is a directory of local tax attorneys, CPAs, and enrolled agents who focus on tax resolution. They will give you the personalized solutions and the hands-on service you need.

Article Sources

https://www.irs.gov/payments/online-payment-agreement-application
https://www.irs.gov/pub/irs-pdf/f9465.pdf
https://www.irs.gov/pub/irs-pdf/f433d.pdf