Completing an IRS Form 433-D Installment Agreement
The Internal Revenue Service knows most people and businesses can’t pay their full amount of back taxes in a lump sum.
When a person or business can’t afford to pay up, they have several options for negotiating with the IRS. One of those options is a payment agreement, usually called an Installment Agreement.
Taxpayers can use IRS Form 433-D to set up a direct debit Installment Agreement that makes a payment plan official. Here’s how it works.
What is IRS Form 433-D?
It is a form taxpayers can submit to authorize a direct debit payment method for an IRS installment agreement. In other words, taxpayers leverage it to set up a direct debit installment agreement. Taxpayers generally use can initiate this direct debit method on this form or form 9465.
Like any financial agreement, Form 433-D details how much a person owes, what they’ll pay each period, their personal information, and the terms and conditions. If a taxpayer files jointly with a spouse, that spouse’s information is included on 433-D as well.
The 433-D Installment Agreement also includes the taxpayer’s bank details. The IRS uses an individual’s checking account to deduct the payments automatically each month.
Who Should File an IRS Form 433-D?
Form 433-D is a direct debit installment agreement, so it applies to many taxpayers who owe federal income tax and would like to set up a direct debit installment agreement (monthly payments come from a bank account). These taxpayers include:
- Individual taxpayers and wage earners
- Business owners
- Self-employed filers
- Out-of-business sole proprietors
If the individual is a business owner with delinquent employment taxes, they usually will not leverage this form.
Who Shouldn’t File an IRS Form 433-D?
A taxpayer should not file Form 433-D if the monthly payments would cause them significant financial hardship. Instead, they would use Form 433-A, 433-B, or 433-F, depending on their taxpayer status and whether they are working with the ACS or an IRS revenue officer.
If a taxpayer would like to make monthly payments towards their back taxes but wants to do so with a payroll deduction, they wouldn’t use form 433-D. Instead, they would leverage form 2159.
The 433 forms mentioned above determine how and when someone pays back their taxes owed. The IRS generally uses information on this sheet to decide if a taxpayer qualifies for either an Offer in Compromise, Partial Payment, Installment Agreement, or Financial Hardship.
What is the Difference Between IRS Form 433-D and Form 9465?
Form 9465 allows taxpayers to set up a monthly installment agreement whereby they mail payments (by check, money order, or direct debit) on a monthly basis. Taxpayers can set up monthly payments via direct debit using form 433-D too. However, they cannot use form 433-D to initiate a payment agreement whereby they mail payments on a monthly basis.
What are the Terms and Conditions of IRS Form 433-D?
As with any financial agreement – especially one from the IRS – it’s essential to know precisely what Form 433-D includes before signing on the dotted lines.
Agreements and Liabilities
By signing, the taxpayer agrees to pay the determined amount each month, including penalties and interest, until the taxpayer pays off the taxes or the tax owed expires.
IRS Form 433-D includes a date for when the IRS will start deducting the payments from the taxpayer’s listed bank account. In most cases, payments begin 60 or 90 days after completing the form.
If a taxpayer misses a payment, falls behind on other federal tax requirements, or doesn’t follow up with the IRS when requested, the IRS can terminate the Installment Agreement and pursue collection.
Future Tax Returns and Refunds
Taxpayers in Installment Agreements with the IRS must continue filing annual returns each year. If a taxpayer should receive a tax refund, the IRS will apply the entire refund to the Installment Agreement balance.
As of IRS Form 433-D in 2020, the IRS charges different service fees. If a taxpayer wishes to complete the entire process online (see OPA), the service fee is either $149 or $31. The lower rate applies to anyone using the direct debit payment option. Conversely, anyone paying via check, money order, or card must pay $149.
If someone wants to complete the Installment Agreement by mail but pay via direct debit, they’ll submit a one-time $107 fee. However, if the taxpayer decides to submit the Installment Agreement by mail AND opt for mail, cards, or money order monthly payments, they’re subject to a $225 fee.
That said, anyone in the low-income category – 225% below the federal poverty line – can request a fee reduction.
How to Complete IRS Form 433-D
Form 433-D itself is reasonably simple. You’ll include:
- Your name, spouse’s name if you file jointly, and current address
- Social security number or employer tax identification number, depending on which you used to file
- All phone numbers: home, cell, work, etc.
- Employer’s address and contact information (if you’re not self-employed or a business owner)
- Contact details for your bank account, including checking account and routing numbers
- The amount in dollars you agree to pay right now for your first payment
- The amount you agree to pay monthly
- You may also fill out a section to tell the IRS how much your payments will increase or decrease, plus when and what the change brings the full monthly payment to
Anyone who signs a Form 433-D Installment Agreement must make payments on the same date each month.
How much a person decides to pay monthly depends on factors such as what they owe and their income. A tax preparer or professional can help you figure out the right figure to pitch the IRS. If it’s too low, your Installment Agreement could be denied.
Where to Mail Form 433-D
The IRS has several treasury office mailing addresses. Each taxpayer must choose the correct office based on where they live and how they typically file taxes:
Taxpayers can validate these addresses by reviewing the directions here.
What Happens if You Don’t Make Payments On Time?
If you expect to miss a monthly payment, contact the IRS immediately and let them know about the circumstances.
The IRS might decide to pause your monthly payments but charge a one-time reinstatement fee to resume your payment. As of IRS Form 433-D in 2020, reinstating the Installment Agreement costs $50.
However, simply letting the IRS know you can’t pay for a month isn’t enough. If they choose, the IRS might terminate your Installment Agreement. After terminating 433-D, the IRS will follow up with different collection routes such as:
- Liens: The IRS might place a lien on the delinquent taxpayer’s house, car, or other assets. Liens prevent the sale or transfer of that asset.
- Levies: More likely, the IRS will levy the taxpayer’s bank account to secure the delinquent funds. If the taxpayer has other assets like a home, vehicle, or boat, the IRS might levy those as well or instead.
- Garnishment: The IRS might also contact the taxpayer’s employer to garnish a portion of their wages each month.
On a positive note, termination of an Installment Agreement typically does not extend the statute of limitations on taxpayer taxes owed. However, if the taxpayer appeals, then the CSED stops when the installment agreement has been appealed.
Need Help Figuring Out Your IRS Form 433-D Installment Agreement?
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This article is not legal or tax advice. It should not be used as a substitute for the advice of a competent attorney or a licensed tax professional authorized to practice in your jurisdiction.