How IRS Payment Plans Work

calendar of IRS payment plan

Available IRS Payment Plans

Delinquent taxes, home mortgages, college tuition, DUI fines, and pretty much anything else can usually be reduced to monthly payments. In most cases, the moneylender unilaterally sets the payment terms and the other party can accept them or go elsewhere. But at least to some extent, IRS payment plans, work a little differently.

Many people even qualify for streamlined payment agreements in which the Service accepts all applicants with few questions asked. But before you make that first payment, there are some things that all taxpayers should know.

Initial Considerations

If the taxpayer’s proposed IRS payment plan represents a legitimate attempt to satisfy the debt in less than seventy-two months, the Service normally at least delays adverse collection efforts while it considers the proposal. But the IRS quickly rejects those requests that are basically delay tactics. Here’s how the IRS separates the sheep from the goats:

  • Economic Reality: $25 a month normally has no relationship to the taxpayer’s ability to pay and cannot possibly satisfy a debt of several thousands of dollars within a reasonable time frame. Partial payment plans, as discussed below, are an exception.
  • Unaddressed Prior Issues: This test only applies to subsequent requests. If the IRS rejected a prior payment plan for some reason, perhaps because the proposed monthly payment was too low or because the taxpayer tried to conceal income, and that deficiency is not rectified, the new payment plan request will fall on deaf ears.
  • Timing: If the taxpayer asks for an instalment agreement immediately before the Service pulls the trigger on a tax seizure or bank levy, the request will probably be denied.

Furthermore, taxpayers who defaulted on prior installment agreements cannot get new ones unless their income has increased substantially, or the default was an isolated incident.

Types of IRS Payment Plans

All installment agreements are not the same, so pull up the calculator tool on your device and have a look at the different types of installment agreements:

  • Guaranteed: The IRS must stop all collection activity, including pending liens, and accept the proposal if a balance due of $10,000 or less (as of 2017) will be paid in full within thirty-six months, the taxpayer has no unfiled returns, and within the last five years, the taxpayer has not filed late, paid late, or had another installment agreement.
  • Streamlined: The IRS must also accept a payment plan if the taxpayer owes under $50,000 and the balance will be paid off within seventy-two months. Prior to 1998 and the Fresh Start initiaitve, the cutoffs were under $25,000 and under sixty months.
  • Partial: If the debt is too large and/or the taxpayer’s income is too small, the IRS may allow partial payments on the amount due. The Service will want a completed financial statement (Form 433-F), bank statements for the last three months, and perhaps some other documents. The request then goes to a supervisor for evaluation. Similar to the currently not collectible process, the IRS reevaluates the matter every year or so to determine how much more the taxpayer can pay.
  • Non-Streamlined: If the taxpayer owes more than $50,000 or needs more than five years to pay, the IRS has complete discretion. In non-streamlined cases, as in partial IRS payment plan cases, the Service will probably file tax liens.

There is no early payment penalty. So, if the request falls into one of the first two categories, it’s often a good idea to offer the absolute minimum and make additional payments whenever possible. The IRS will always gladly take your money. Alas, these payment plans are not tax-deductible, so consider that factor in your financial analysis.

Venar Ayar, Esq.

Venar Ayar, Esq.

Attorney-at-Law, Master of Laws in Taxation
Principal and founder, Ayar Law

Venar is an award-winning tax attorney ranked as a Top Lawyer in the field of Tax Law. Mr. Ayar has a Master of Laws in Taxation – the highest degree available in tax, held by only a small number of the country’s attorneys.