Can You Make Monthly Payments or Installment Payments to Settle an IRS Tax Debt?

Can You Make Monthly Payments or Installment Payments to Settle an IRS Tax Debt?

Does the IRS Have Monthly Payment Plans for Back Taxes?

Yes, the IRS offers a variety of payment plans and installment agreements to help people pay off their tax debts within a specific timeframe. If you owe less than $50,000, are current with filing your federal tax returns, and can pay off your debt in less than 72 months, you can ask for a payment plan.

Business owners with less than a $25,000 tax debt can also establish a payment plan if they can repay the debt within 24 months.

Note that only individual taxpayers are eligible for short-term payment plans to pay within 180 days.

How Do You Know What IRS Payment Plan or Installment Agreement You Qualify For?

If you are eligible to apply for a payment plan, the IRS will want to assess how much you owe and your current income, expenses, and assets. This assessment determines how much your monthly IRS payment will be and the number of months you will have to pay.

After getting approved for a payment plan, you will also be asked how you will make monthly payments. Direct debit payments are preferred by the IRS to save time and money on setup fees. Have your account number and bank routing number available if you use checks or do not have a debit card.

What is the Minimum IRS Monthly Payment for Back Taxes?

How little you will be allowed to pay the IRS each month on your payment plan largely depends on the amount of your tax debt and your current financial situation. For example, if you owe $15,000 in back taxes and can afford to pay off the debt in 24 months, your minimum monthly payment is $625 per month.

If you cannot afford the $625 monthly installment payment, the IRS may allow you to have up to 72 months to pay off the tax debt with lower monthly payments.

Do IRS Payment Plans Have Setup Fees?

Paying by direct debit reduces the IRS payment plan setup fee from $225 to $31 for long-term plans. Taxpayers who qualify as low-income at the time they were approved for a payment plan may also have their setup fees waived.

Individuals approved for short-term payment plans do not have to pay setup fees if they submit payments from checking/savings accounts (Direct Pay) or use the IRS Electronic Federal Tax Payment System (EFTPS). However, setup fees will be applied if payment is made with a credit/debit card.

The U.S. Office of Management and Budget (OMB) mandates federal agencies charge fees for services like IRS payment plans and installment agreements. Fees are used to cover expenses involved with processing these plans.

If I Pay the IRS Monthly, Will They Keep Charging Interest and Penalties?

Yes, you continue to pay penalties and interest until your tax debt is paid in full. Even though you are making payments on time as per your agreement with the IRS, you will still have interest charged on your remaining balance every month until you have fully paid off the tax debt you owe.

IRS interest charges on unpaid tax debt is referred to as “underpayment” interest. Underpayment interest is also applied to tax debts if monthly IRS payments are not paid by their due date.

Whenever possible, a tax debt should be paid off as quickly as possible to avoid paying interest and penalties, especially with interest rates hovering between 8-10%.

If I Already Make Monthly IRS Tax Debt Payments, Can I Request a Lower Monthly Payment Amount?

Yes, you can request a reduced monthly payment amount by using the IRS Online Payment Agreement tool. If your newly requested amount is not accepted because it is too low, you will be instructed to revise the amount and resubmit.

Some taxpayers may be eligible to submit an Offer in Compromise to settle tax debt for less than the full amount owed.

Need more help? You can start online by answering 6 simple questions. We never charge for ‘investigations’ or consultations. You can also call us at 866-568-4593.

6 Simple Questions. Free Evaluation.

Join our Newsletter

Enter your email address to join our free newsletter. Get all the latest news and updates.