Those who cannot make tax payments in full may be eligible for an IRS payment plan, installment agreement, or Offer in Compromise.
Each payment plan has its own criteria and length of time for you to pay what you owe in full.
Short-Term Payment Plan
With a short-term payment plan, you have 180 days to pay your back taxes to the IRS. If you don’t have the money to cover your taxes immediately, the IRS may agree to this 6-month payment plan if you can pay in full. When you can pay in full, there are also no IRS fees to set up a short-term plan.
However, the interest and penalties you owe will continue to accrue during the 180 days.
Streamlined Installment Agreement
For some, more time is needed to pay the tax debt owed. One of the installment agreement options you may be eligible for is a streamlined agreement. Streamlined means that you can pay the back taxes amount over a period of 72 months.
You may qualify for this IRS installment agreement if you owe $25,000 or less, or your tax liability is between $25,000 and $50,000 and you agree to make installments payments as a payroll deduction or by direct deposit.
Guaranteed Installment Agreement
In addition to streamlined payment plans, the IRS offers a guaranteed installment agreement to some people who do not owe more than $10,000, filed the past 5 years income tax returns on time, and paid all tax due in that same time. You also cannot have previously entered into an installment agreement.
Per guaranteed installment terms, you must pay the full amount you owe the IRS within 3 years and comply with all tax laws.
Partial Payment Installment Agreement
PPIA is another option if you’re unable to pay the full amount of your back taxes before the Collection Statute Expiration Date (CSED). If you propose to the IRS that you will make a monthly payment, but the total amount paid over time won’t cover the total amount owed, you can complete a financial information statement and request a partial payment installment agreement.
In this case, the IRS will calculate what amount you can pay every month until your CSED expires.
Offer in Compromise
An Offer in Compromise is a payment arrangement between you and the IRS for you to pay a portion of your back taxes that is less than your total tax debt. When you submit your offer with forms 656 and 433, the IRS will analyze your income, assets, and expenses to verify that you can’t pay and how much you should pay.
For a lump sum cash offer, back taxes must be paid within 5 months. For a periodic payment offer, back taxes must be paid within 24 months.
What Happens If You’re on an IRS Payment Plan and Can’t Make Payments?
You may qualify for additional time if you cannot make monthly IRS payments on time. However, you will need to contact the IRS directly as soon as possible, so that you don’t default on your payment plan. They may ask you to submit a new 433 form before giving you additional time.
Once You’re on a Payment Plan, Can You Request a Different Payment Amount or More Time to Pay?
You may be able to change the amount you pay or the timeline to make installment agreement payments in some situations. However, the new monthly payment you make must be enough to pay off your debt within the allowed timeframe.
As mentioned earlier, before the IRS considers changes to payment plans, they’ll want to review a new collection information statement to better understand why you need to change your plan.
Can You Switch Payment Plans?
Is it possible to go from a short-term plan to an installment agreement or an installment agreement to an Offer in Compromise? In some situations, yes.
Keep in mind that the IRS does not allow individuals to have more than one payment plan at any given time. The key is to work with the IRS to determine what has changed and to discuss the options available to you based on the amount you owe, your history of making payments on time, and changes to your current financial situation.
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