IRS Payment Plans for Business and Individuals

Once you have information about your IRS account, have filed all required tax returns, and know your total balance due (including penalties and interest), you can choose a payment plan.

The IRS offers several types of payment plans, hence they really do encourage you to get into one.

Here’s a quick overview of the main payment plan options to carefully review:

1. Short-Term Payment Plan

A short-term payment plan is a good choice for taxpayers who can pay off their debt within six months but need a bit more time.

Short-term payment plans must be paid within 180 days and can be applied for online without incurring any user fees. You can also call the IRS and apply on the spot. You should receive an IRS notice about your 180-day payment plan around three weeks after you talk to an IRS representative.

2. Streamlined Installment Agreement

A Streamlined Installment Agreement (SIA) is a common IRS payment plan that lets taxpayers pay their tax debt in monthly installments over a set period. To qualify, individuals must owe $50,000 or less in total taxes, penalties, and interest. Businesses must owe no more than $25,000.

For individuals, to calculate your minimum monthly payment, add up your tax liability, penalties, and interest, and divide by 72. Setting up an SIA involves a fee that varies depending on your application method and payment options. Streamlined Installment Agreements for individuals must be fully paid within 72 months or before the Collection Statute Expiration Date (CSED), whichever comes first.  For business taxpayers, they can make monthly payments for up to 24 months.

To apply, you can submit  IRS Form 9465, Installment Agreement Request. You can complete this online, by mail, or by phone.

This payment plan option does not require financial documentation and is often quicker to set up. It is available to individuals and small businesses.

To avoid a tax lien for an individual streamlined agreement, you must set up a direct debit installment agreement (DDIA) by submitting IRS Form 433-D. If you establish a payment plan online, any balance over $25,000 must be paid by direct debit. Make sure you have your bank account information ready for this process, whether you do it by phone or online.

3. Non-Streamlined Installment Agreement

A Non-Streamlined Installment Agreement is a payment plan for taxpayers with higher balances—over $50,000 for individuals or over $25,000 for businesses. Like other installment plans, it has a setup fee that varies by payment method.

To calculate your monthly payment, you’ll need to submit either Form 433-F for individuals or Form 433-B for businesses. If an IRS revenue officer is assigned to your case, you need to fill out Form 433-A along with some extra documents.

The agreement’s term will depend on your financial situation. Once the IRS reviews your information, they will either approve your payment plan or suggest changes. Negotiating may be necessary, especially regarding disputed expenses. Consulting a tax attorney can be beneficial.

Finally, let the IRS know about any changes in your financial situation. This will impact your ability to stick to the agreement. They will not approve a plan you cannot afford.

4. Partial Payment Installment Agreement (PPIA)

A Partial Payment Installment Agreement (PPIA) is a payment plan for taxpayers who can’t pay their full tax debt before the IRS’s collection period ends. This period, known as the Collection Statute Expiration Date (CSED), usually lasts 10 years from when the tax was assessed but can be extended in some cases.

With a PPIA, you pay a monthly amount based on what you can afford until the CSED expires. After that, any unpaid balance is forgiven and cannot be collected by the IRS. This agreement not only helps you manage payments but also protects you from more serious collection actions, like levies or asset seizures, while it’s in place.

5.  Payment Options for Taxpayers Who Owe $250K or Less

Taxpayers, including individuals and out-of-business sole proprietors, who are actively working with the IRS to resolve their tax debt and owe $250,000 or less, may propose a monthly payment plan to settle the balance over the remaining collection statute—typically up to 10 years.

These payment arrangements offer a streamlined process, as they do not require the submission of a financial statement. However, the IRS will still evaluate whether filing a Notice of Federal Tax Lien is necessary as part of the agreement.

This option provides flexibility and simplifies the resolution process for qualifying taxpayers, allowing them to manage their tax obligations without excessive documentation.

How do I Request an IRS Payment Plan?

You can set up IRS payment plan online, by mail, or over the phone. For online applications, you usually need to owe $50,000 or less in total taxes, penalties, and interest. Use the IRS Online payment Agreement Tool for help.

To apply by mail, fill out Form 9465 or Form 433D for direct debit and ensure all your filings are up to date. If you don’t hear back within 6 weeks, call the IRS for a status update.

You can also call the IRS directly to set up a payment plan if your debt is under $50,000. They may be able to arrange it during the call. Be prepared to confirm your ability to pay the suggested amount.

Payment plans can be complicated, so it may be wise to consult a tax attorney. Lastly, check the costs associated with each plan, as fees are generally included in your first payment.

Case Scenario: Setting Up a Payment Plan for $42,000 in Tax Debt

Sarah is a graphic designer who works for herself and files a Schedule C on her personal tax return. She owes the IRS $42,000 because of some unexpected money problems, along with penalties and interest. Feeling stressed, she decided to get help from a tax attorney.

After looking over her finances, we saw that Sarah could qualify for an IRS installment agreement. We checked her financial documents and found she could make payments.

We suggested a Streamlined Installment Agreement because her debt was under $50,000 and could be paid off in 72 months. This option let her avoid sharing too much financial information with the IRS and made the process faster.

We also recommended a Direct Debit Installment Agreement (DDIA) to help her make monthly payments on time. She agreed to pay $580 each month based on her budget.

Additionally, we helped her get penalty relief using the IRS’s First-Time Penalty Abatement program. This reduced her balance by $4,000 because she had followed the rules in the past.

With the payment plan and the penalty relief, Sarah avoided serious collection actions, like liens or levies. She hopes to pay off her balance sooner if her financial situation improves.

Interest and Penalties on Unpaid Taxes

Interest and penalties on unpaid taxes can greatly increase your tax debt. Interest begins on the due date of the return and compounds daily until paid. Even a small balance can grow over time.

The late payment penalty is 0.5% per month on the unpaid amount, capping at 25%. If you enter a payment plan, this rate drops to 0.25%.

If unpaid taxes persist after 10 days of an IRS levy notice and you lack a payment plan, the rate increases to 1%. The IRS usually does not forgive interest charges, although penalties can sometimes be reduced.

Avoid a Default of your Payment Plan

If you default on your IRS payment plan, your installment agreement will typically be terminated after about three months. The IRS provides several chances to catch up before this happens.

Always read any IRS notices and respond promptly to a Notice of Intent to Terminate Installment Agreement. If you can’t make a payment on time, you can call the IRS to request a pause for one or two months. They often accommodate these requests.

If you have a direct debit agreement and your account does not have enough money, the IRS may take action against you right away without any notice. 

If your plan is terminated, you can usually reinstate it online, though there might be a fee. If online reinstatement isn’t possible, contact the IRS to explore reinstatement options or apply for a new payment plan to avoid IRS collections.

Reviewing and Revising Your Payment Plan

When setting up a payment plan with the IRS, many people worry about changes in their financial situation that could prevent them from making payments. It’s crucial to assess your finances thoroughly before committing to a plan. If you’re struggling, consider options like a partial payment plan or “Currently Not Collectible Status” (CNC) until your situation improves. Consulting a tax attorney can also help determine what you can afford.

If your finances change while you’re in a payment plan—due to job loss, reduced income, disability, or caregiving responsibilities—you may need to modify your plan.

To change your existing payment plan, use the IRS’s online payment agreement tool. By logging in and clicking on the Apply/Revise button, you can adjust your payment amounts and due dates. If this tool doesn’t allow changes, you will need to call the IRS to prevent any collection actions.

Offer in Compromise (OIC)

If a payment plan isn’t suitable for you, consider an Offer In Compromise (OIC) or settlement. The IRS has a program that allows you to pay less than what you owe in taxes. However, you must meet strict criteria based on your financial situation to qualify for this option.

We always check if clients qualify for an OIC since it can be a beneficial choice.

At Delia Law P.C., we have extensive experience resolving IRS and state tax problems. We can help you set up a payment plan quickly.

Contact us today to discuss your situation and find the best solution for your tax debt.